The audit of going concern is often a challenge. Here we look at what a good audit file looks like in the context of going concern.
The content below provides training materials to assist you in embedding what good looks like in your firm in the context of the audit of going concern.
Each case study focusses on specific aspects of the audit and is introduced by a short video. The case studies can be used independently or as part of a series and each can be downloaded via the ‘read the case study’ link. Questions for discussion and training purposes are included with each case study. If you would like ICAEW to facilitate the training for your firm please contact academy@icaew.com for more details.
In addition to the case studies, detailed guidance has been produced as well as a short video covering ICAEW’s Quality Assurance Department’s views on what good looks like in the context of the audit of going concern.
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Introduction to the case studies and objectives
An overview of the focus of the case studies, what we mean by good and a reminder that there is no silver bullet.
Case study 1 – Last Post Trading Limited
Covering areas such as: who should lead the audit team discussion; how to document scepticism; evidence relating to cash flow forecasts; and challenging management on assumptions and disclosures.
Consider the following areas for discussion:
- Would you have approached obtaining audit evidence on the financial viability of the parent differently?
- Would you have reached the same audit conclusion regarding going concern?
- To what extent would it be acceptable for auditors to assist management in the drafting of the disclosure, either as auditors or as a non-audit service?
- Did you see sufficient evidence of challenge and scepticism?
Case study 2 – Winchester Limited
Covering areas such as: the iterative nature of risk assessment; management bias and the risk of fraud; challenging management’s assessment; contradictory evidence; and second partner review.
Consider the following areas for discussion:
- What sources of external data (such as ONS data) do you use to compare against assumptions used in cash flow forecasts?
- Is the auditor right to consider that management bias could give rise to a fraud risk?
- Do you agree that significant elements of going concern audit evidence need to be retained on file?
- Was anything gained by delaying sign-off? If not, how should auditors deal with it?
- Did you see sufficient evidence of challenge and scepticism?
Case study 3 – Crown Research Limited
Covering areas such as: scenario planning and supporting management on this; presentation of good documentation; and disclosure where there is no material uncertainty.
Consider the following areas for discussion:
- To what extent can the auditor assist with the cashflow forecasts?
- Do you see sufficient audit evidence to support the view that there are no material uncertainties?
- Do you see sufficient evidence of challenge and scepticism?
- Was the disclosure necessary for a true and fair view?
QAD perspectives on what good looks like
Nick Reynolds, QAD Senior Manager, gives his thoughts on some of the areas covered in the case studies, including the use of freeform documentation vs audit software, the period of review for going concern, the RI’s footprint on the audit documentation, second partner review and the use of external evidence.