FRC strengthens Going Concern audit requirements

On 30 September 2019, the Financial Reporting Council (FRC) issued a revised version of ISA (UK) 270 – Going Concern.  The revised standard applies to audits of accounting periods commencing on or after 15 December 2019.  Earlier adoption is permitted. 

The revised standard, for which an exposure draft was published in March 2019, is issued in response to recent FRC Enforcement cases and widely publicised corporate failures where the audit report did not highlight concerns about the prospects of entities which collapsed shortly afterwards. 

The standard increases the work which 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 has taken this approach in the hope that requirements internationally will also be strengthened. 

The revised standard requires: 

• greater work by 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 auditors 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; 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 revised standard and the FRC’s feedback statement can be accessed here

Please contact us if you would like to discuss how the revised standard will affect you.