FRC strengthens Going Concern audit standard

The Financial Reporting Council (FRC) has issued a revised going concern standard in response to recent enforcement cases and “well-publicised corporate failures”.

The revised standard (ISA UK 570 Going Concern) follows concerns about the quality and rigour of audit and increases the work auditors are required to do when assessing whether an entity is a going concern.

It means UK auditors will follow significantly stronger requirements than those required by current international standards.

The FRC said it hopes that UK experience will lead to “further strengthening” of requirements at the international level.

The revised standard requires:

• Greater work on the part of the auditor 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 of public interest entities, listed and large private companies to provide a clear, positive conclusion on whether management’s assessment is appropriate, and to set out the work they have done in this respect.
• A stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.

Stephen Haddrill, FRC chief executive, said: “High-quality audit protects the public interest, meets the needs of users of financial statements and underpins investor confidence. Recent corporate failures have, for good reason, adversely affected that confidence.

“Our own Enforcement work has demonstrated a need to strengthen existing Going Concern standards, which is a fundamental aspect of audit, so that investors can have confidence in audited financial statements and businesses’ financial prospects.”