Going, going gone! Are Auditors to blame for insolvencies?

In response to the collapse of various high profile businesses such as Patisserie Valerie; Carillion, BHS, and more recently Thomas Cook, tougher rules for auditors have been announced this week requiring them to substantially increase the work they will have to do in assessing whether a business is a going concern.

Auditors will be required to robustly challenge and seek more thorough evidence of management’s assessment of going concern.

Auditors of public interest entities; listed and large private companies will also have to provide a report clearly explaining whether the management’s assessment is appropriate and setting out the work they have performed to reach such a conclusion.

The standard also requires auditors to “stand back” and review all the evidence they have obtained – “whether corroborative or contradictory” – before drawing their conclusions about going concern.

The Financial Reporting Council (FRC) said that the changes were essential in light of the recent corporate failures and the need to restore public and investor confidence in businesses’ financial prospects.

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