Big questions about Going Concern


The UK audit regulator has revealed that among the key reasons for launching an investigation into the collapse of Thomas Cook were ‘issues around going concern and goodwill impairment.’

As if on cue, the Irish audit regulator IAASA, has just issued (October 2019) a revision to the audit standard on Going Concern, called ISA 570. This comes into effect for audits of accounting periods that commence on or after 15 December 2019. 

The revised standard on Going Concern in Ireland will trigger additional audit work and evidence gathering for auditors in the following areas:

  • 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;
  • make greater use of the viability statement;
  • improved transparency with a new reporting requirement for the auditor of public companies, listed and large private companies to provide a clear, positive conclusion on whether management’s assessment is appropriate;
  • to set out the work they have done in this respect; and 
  • a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.

This standard arrives at a very important time, in the midst of serious questions being raised about recent corporate collapses in the UK such as the travel company Thomas Cook, BHS and Carillion

The ongoing FRC investigation into EY’s audit of the financial statements of Thomas Cook Group has raised questions about the sufficiency of the challenge auditors applied to management’s assumptions about going concern and goodwill, and the sufficiency of the audit evidence to support the work that was done. 

Answering questions from the UK Business, Energy and Industrial Strategy (BEIS) committee, the FRC director of enforcement, Elizabeth Barrett, told UK MPs that there was sufficient information about potential issues within the audit to merit an investigation.  

When asked to specify those concerns, Barrett replied ‘broadly speaking, in particular issues around going concern and goodwill impairment.’

While Thomas Cook had reported impairments to goodwill in 2011, there had been no further reporting on this until 2019, when £1.1bn was written down.

The UK audit regulator (FRC) has also amended the audit standards on going concern and goodwill impairment in recent times. 

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