CA ANZ and ACCA have lodged a joint submission on the IAASB’s Exposure Draft (ED) proposing revisions to ISA 570 Going Concern which aim to enhance transparency and promote consistency in practice in relation to going concern.

While we agree with the need for improved transparency and consistency in practice around going concern, we believe this can only be achieved by a holistic approach with changes across the whole financial reporting ecosystem. We stress that the auditing standards alone cannot address the expectation gap and no amount of regulation can remove the risk of business failure entirely.

The key points in our joint submission are:

• We do not support the change in commencement date of the 12-month period of management’s assessment of going concern (from the date of the financial statements to the date of approval of the financial statements) as it would result in a misalignment with the requirements of IAS 1 Presentation of Financial Statements. While we are aware that some jurisdictions, including Australia and New Zealand, already impose different requirements for the assessment via local amendments, fundamentally we believe that the auditing standards cannot impose reporting requirements on management. The period to be covered by management’s assessment of going concern is a financial reporting framework issue and therefore beyond the IAASB’s remit.
• The scalability of the proposed revisions in many instances are reasonable for listed/public interest entities but not as much for smaller or less complex entities. For example, requiring auditors of small or less complex entities to perform additional procedures to evaluate management’s assessment of going concern, regardless of whether there is significant doubt on the entity’s ability to carry on as a going concern may result in greater costs than benefits.
• Stakeholders identified concerns with several aspects of the proposed requirements for the inclusion of a statement in relation to going concern in the auditors’ report where: 
  • There is no issue – making a strong positive statement on going concern may be interpreted as a separate opinion and therefore give rise to liability concerns. Stakeholders were also concerned about whether users will focus appropriately ongoing concern when a statement is always included in the auditor’s report.
  • Events or conditions exist but there is no material uncertainty – the IAASB should consider whether a different heading, or other differentiation would be appropriate in these circumstances as using the same heading may only exacerbate the issues of dilution of the informational value of financial statements. 
  • Material uncertainty relation to going concern (MURGC) exists – these requirements again are misaligned with the requirements of the financial reporting standards. Auditing standards cannot impose disclosure requirements on management, others within the financial reporting ecosystem need to make changes to narrow the expectation gap. In order for the auditor to be in a position to conclude on the appropriateness of management’s use of the going concern basis of accounting and whether a material uncertainty has been identified, management should be making equivalent disclosures in the financial statements.