The FRC issued a revised going concern standard in 2019 in response to recent Enforcement cases and well-publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after.
The revised standard requires:
1. 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;
2. improved transparency with a new reporting requirement for the auditor 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
3. a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.
Given the current business lockdown conditions with no end in sight, it seems almost impossible for any auditor to satisfy the above conditions and provide a clean opinion for many listed firms. This problem needs an urgent resolution to avoid long term problems including law suits by investors or directors against the auditors.