The Financial Reporting Council (FRC) has revised ISA (UK) 570 Going Concern which significantly extends auditors’ responsibilities around going concern. The coronavirus crisis and the impact on going concern reporting has prompted the FRC to recommend auditors consider the early adoption of all or part of the revised standard (originally due to be effective for audits of financial statements for period commencing on or after 15 December 2019).
The standard requires a more structured and rigorous auditor risk assessment, greater work effort and expanded reporting, even when no material uncertainty has been identified. In view of this, additional time will be needed to complete the audit and more evidence may be required from an audited entity.
In addition, auditors are required to make a positive statement that they have not identified a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern.
The changes include:
- enhanced risk assessment procedures;
- greater challenge of management’s assessment in relation to going concern, including prescribed procedures that must be performed in relation to forecasts;
- a greater scrutiny of the adequacy and completeness of supporting information used to produce management’s assessment relating to going concern;
- a greater emphasis on the appropriateness of disclosures made by management, even in instances where there are no material uncertainties related to going concern; and
- procedures to be performed to identify and evaluate risks of management bias.
Please contact Jonathan Ericson if you have any questions or concerns on the impact of the changes.