FRC consults on stronger Going Concern auditing standard for auditors

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07 Mar, 2019

The Financial Reporting Council (FRC) has launched a consultation on revisions to International Standard on Auditing (ISA) (UK) 570 'Going Concern'. The consultation proposes to increase the work of auditors when assessing whether an entity is a going concern.

The FRC notes that there are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledge-based economy. Therefore, the FRC paper published today considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future. 
The FRC notes that there are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledge-based economy. Therefore, the FRC paper published today considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future. 

The proposals have been made following a number of high profile corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after. Additionally findings of the FRC Enforcement cases have raised concerns about the quality of audit. The FRC indicates that in proposing these revisions, requirements on UK auditors will be significantly stronger than those required by international standards.

The consultation proposes:

  • auditors make greater effort to more robustly challenge management’s assessment of going concern, thoroughly test the adequacy of the supporting evidence, evaluate the risk of management bias, and make greater use of the viability statement;
  • improved transparency with a new reporting requirement for the auditor to provide a conclusion on whether management’s assessment is appropriate, and to set out the work they have done in this respect; and
  • a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.

The press release and exposure draft are available on the FRC website. Comments are requested by 5pm on Friday 7 June 2019.

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