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John Selwoods Audit clinic

This month John deals with questions on the new-style audit reports that many auditors have started to use for periods commencing 17 June 2016 onwards.

Question
This morning I reviewed a draft audit report for a 30 June 2017 year end and it included a going concern paragraph. There are no going concern issues, but the software supplier tells me that the paragraph is now mandatory and cannot be removed. Is this true?

Answer
You will not be the last auditor to be surprised by this major change to the audit report. The inclusion of the new going concern paragraph – which has not been as talked about as I would have expected – is required by revised International Standards on Auditing (UK) (ISAs(UK)), which apply for periods commencing 17 June 2016.

Typically June 2017 year ends will be the first time that these requirements are applied, although I have already seen a few examples in audits of short periods.

Arguably, the most major change to the audit report is that auditors now report by exception on going concern. If there are no significant uncertainties and no other issues relating to going concern the audit report will include the following:

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

  • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
  • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue.

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