The Financial Reporting Council (FRC) has issued minor amendments to the audit rules for International Standard for Review Engagement (UK) 2410, but is holding back on any significant updates until the government's audit reforms are implemented
This particular standard focuses on the review of interim financial information performed by the independent auditor of the entity.
The revised standard provides additional clarity on auditor responsibilities, strengthens the review procedures required on management’s going concern assessments and strengthens reporting requirements in relation to going concern.
This is the first revision since the standard was originally issued in 2007 but FRC said in the feedback statement that it had only made very limited amendments as ‘implementation of Brydon’s recommendations by the government may have implications for interim financial information. As a result, we believe it is appropriate to postpone a full-scale revision of the standard, pending the outcome of the consultation’.
This means that there are only limited revisions to ISRE (UK) 2410 which relate to going concern, and some updated references, ensuring style and format are consistent with modern auditing and assurance standards and revised sections which detail the applicable financial reporting framework requirements for the preparation of interim financial statements.
For a review of consolidated group interim financial information, the auditor traces the financial information of group components to the consolidation schedules and records of significant consolidation journals and adjustments. The auditor is not required to check the financial information back to the accounting records of individual group components.
Going concern issues are one of the most important changes in the amended standard. The FRC has expanded the guidance here, stating that ‘where management have changed their assessment of the entity’s ability to continue as a going concern since the last annual financial statements, the auditor shall perform review procedures on management’s assessment of the entity’s ability to continue as a going concern to determine that: the method selected, and any changes made to the methods used for the entity’s last annual financial statements, are reasonable; any calculations are accurately applied in accordance with management’s stated method; the underlying data used to make any assessment of the entity’s ability to continue as a going concern is consistent with the auditors understanding of the entity; and the assumptions on which management’s assessment is made are reasonable based on the auditor’s understanding of the entity.
Overall, most respondents were supportive of the FRC’s desire to clarify both the director’s and auditor’s responsibilities and to require more detailed reporting on the work undertaken in relation to going concern. However, many respondents also felt that some of the new material potentially risked confusing auditors’ responsibilities in a review engagement with those relevant to an audit of financial statements. This was particularly important as this standard only relates to mid-year interims.