Covid impacts going concern assessments

Audit firms have heeded Financial Reporting Council (FRC) advice to implement additional measures to enhance their evaluation of companies’ going concern assessments during the pandemic, a review by the regulator has found

The FRC looked at a sample of eleven audits of the going concern assessments performed by the seven largest UK audit firms. The review found that the additional policies and procedures introduced earlier in the year had been substantially applied in practice.

 The auditors demonstrated an appropriate level of challenge to company boards and management about their key assumptions, stress testing and disclosures in the financial statements.

In some cases, auditors needed to improve their consideration of the going concern assessment period, which was not always clear, and their approach to testing the integrity of the forecasting models.

David Rule, the FRC’s executive director of supervision, 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.  

‘From the sample of audits reviewed, the FRC found that auditors had enhanced their procedures when auditing management’s going concern assessment. The audit procedures were proportionate to the risks facing the companies, which varied depending on the impact of Covid-19 on their businesses.’

The FRC said in its letter to heads of audit at firms that its review also includes areas of good practice which will be relevant for all audit firms undertaking going concern assessments, in particular for the forthcoming December 2020 year end audits.

Further reading:

FRC Going Concern review

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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