ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Charities
    5. Coronavirus
    6. Corporate and financial reporting
    7. Business and governance
    8. Ethics
    9. Insolvency
    10. ICAS Research
    11. Pensions
    12. Practice
    13. Public sector
    14. Sustainability
    15. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

AR: Going concern considerations arising from COVID-19 and recent corporate failures

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Alix Gemmill

12 October 2020

  • ISA (UK) 570 was updated in 2019 to enhance the requirements for auditing going concern.
  • COVID-19 has increased economic uncertainty, and made the preparation of going concern assessments more difficult for businesses.
  • ICAS has produced guidance to businesses on producing a going concern assessment during the COVID-19 pandemic.

Lecturer and Assurance & Reporting Subject Controller, Alix Gemmill, considers the impact COVID-19 and corporate failures have had on going concern assessments for both company directors and auditors.

Most sets of financial statements are prepared on the “Going Concern” basis, ie. on the assumption that the company is going to continue in business for the foreseeable future. In the Assurance and Reporting course, we consider the responsibilities of both the directors and the auditors in relation to Going Concern.

It is the responsibility of company directors to make an assessment on the ability of their company to continue as a going concern, for a period of at least 12 months from the date the accounts are signed, and to prepare the financial statements accordingly. The auditor then has a responsibility to ensure they obtain sufficient, appropriate audit evidence to conclude on management’s use of the going concern basis. As part of this, they must consider whether any material uncertainty exists, in other words, whether there are any future actions or events not under the direct control of the entity that could affect or cast significant doubt over the entity’s going concern. If this is the case, this material uncertainly should be disclosed in the financial statements.

New requirements for auditors

Auditors’ processes around going concern have been thrust into the spotlight in recent years following the high-profile corporate failures of companies such as BHS, Carillion and Thomas Cook. The collapse of each of these companies led to calls for more stringent requirements for auditors regarding the work they do to assess going concern on their clients. This led to changes to ISA (UK) 570 – Going Concern which will come into effect for audits of periods beginning on or after 15 December 2019. These changes impact all stages of the audit process, and include enhanced requirements for auditors to evaluate the client’s method for assessing going concern, consider the relevance and reliability of data used and any assumptions made, consider future actions that the client has planned and obtain written representations regarding going concern. While early adoption was possible, we are now entering the period where we will start to see these coming into effect more widely for audits performed in 2020 and 2021.

The impact of COVID-19

Going concern remains a hot topic in 2020 due to the COVID-19 pandemic, as these changes to ISA (UK) 570 coincide with a period of significant uncertainly for most businesses. As such, viable projections become even more difficult to make. Global lockdowns and the resultant economic downturn have called into question the ability of many companies to continue in business. In addition, the forecasting required for a going concern assessment has become significantly more difficult, with no clear picture of how the UK and the World is going to emerge from the crisis.

Directors must rise to the challenge of preparing detailed assessments and disclosures. It is likely that they will be expected to carry out more detailed analysis, perhaps using sensitivity analysis to consider multiple outcomes, or reverse stress testing to determine what would have to occur for their business to fail. We can expect to see more detail in the Directors’ Reports in financial statements to explain the extent of their analysis, and to justify their going concern assessment. In turn, auditors must ensure that they provide appropriate challenge to meet their requirements relating to going concern.

ICAS guidance

So how have audit firms and professional bodies reacted? In May 2020, ICAS published guidance for directors of large companies, and, alongside ICAEW, small and medium sized entities, on how to assess their going concern in light of COVID-19. It is hoped that by following such guidance, directors will be more prepared for the necessary robust discussions they can expect to have with their auditors.

FRC review

The FRC has also been actively reviewing the going concern policies and procedures of audit firms. Their recent findings demonstrate that audit firms are reacting appropriately by enhancing their consultations, communications and reviews in this area. The FRC review noted that there is an expectation that COVID-19 will result in more references to going concern in an auditor’s report (either as a material uncertainly or key audit matter), and that firms should continue to develop their policies to consider this.

Going forward, we can expect to see robust procedures and more detailed disclosures from both directors and auditors to ensure that going concern is appropriately considered during an audit.

Learning blog

Gain useful hints, tips and insights from ICAS lecturers.

ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: