The FRC reviewed 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. 

Going concern assessments have become significantly more difficult for many companies and their auditors, given the uncertainties about the impact of Covid-19 on the economy. 

Boards are responsible for assessing whether a company is a going concern and whether any material uncertainties to going concern exist.                                  

The FRC’s review follows updated guidance issued to companies and auditors in March, an  FRC Lab report on going concern, risk and uncertainty and a CRR report on the financial reporting of Covid-19.

The FRC’s 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. 

The results of the review can be found here.