FRC: Expectations and standards ‘still apply’

The Financial Reporting Council (FRC) has moved to remind companies that expectations and standards have not changed, despite the ongoing Covid-19 crisis.

At the same time, however, the FRC clarified that it had not increased pressure on auditors to be tough.

In an update, the Council said auditors should still challenge management “appropriately” on their judgements and ensure there is sufficient evidence to support any decisions made.

In conjunction with this update, the FRC said it was issuing practical guidance to auditors and companies during this time.

This follows a joint statement by the FRC, the Prudential Regulatory Authority and the Financial Conduct Authority at the end of March, alerting investors that more ongoing material concerns were likely given the uncertain outlook for many companies. 

 This joint statement also “strongly” encouraged lenders and other parties to take into account current circumstances. 

The FCA also extended deadlines for publication of audited annual financial reports from four to six months from the end of the financial year, to give companies and auditors more breathing space and adjust their reports accordingly. 

In recent weeks the FRC has amended its guidance for auditors and companies during the crisis. This has included practical advice on how to gain information remotely, stressing the importance of cancelling face-to-face meetings and respecting social distancing guidelines.

Speaking on a recent ICAEW webinar, FRC acting executive director of regulatory standards Mark Babington said the council recognised the current situation was unprecedented and that everyone in the organisation was working hard to help auditors and companies deal with the ramifications.

On the issue of going concern, Babington highlighted the recent issue of ISA (UK) 570, which provides extra guidance for auditors in ascertaining if material uncertainty exists that threatens an entity’s ability to continue as a going concern.

This could, for example, include a detailed and robust review of up-to-date forecasts, cashflows, sensitivity analyses, reviews of coronavirus contingency plans and impact assessments conducted by management.