Audit firms have introduced a range of additional measures to enhance their evaluation of companies’ going concern assessments, since the start of the Covid-19 emergency, according to a review initiated and undertaken by the Financial Reporting Council (FRC).
The FRC’s review covered the going concern policies and procedures of the seven largest UK audit firms required in accordance with ISA (UK) 570. The review found that the additional policies and procedures introduced were appropriate and reasonably consistent across the firms.
The FRC said audit firms have increased the extent of required consultations and central guidance for audit teams, and have had regular communications with them, to ensure consistency in the audit of going concern.
The watchdog added that these additional measures also increased the level of challenge to company boards and management about their key assumptions, stress testing and disclosures in the financial statements.
The FRC said it will review a sample of completed audits as the next stage of the review, to assess how the revised going concern policies and procedures are being applied in practice and will report on this later this year.
The FRC’s executive director of supervision, David Rule, said: “The pervasive and uncertain impact of Covid-19 has made assessing whether companies have a material uncertainty to going concern much more difficult for many boards and their auditors. No-one has a crystal ball, but investors do expect appropriate consideration and disclosure of uncertainties.
“Our review found that audit firms have taken sensible steps to increase required consultations and offer more central support to audit teams. Audit procedures also need to be proportionate to the risks facing companies, which vary considerably depending on the impact of the pandemic on their businesses.”