Auditors will be forced to challenge company reports, watchdog says

The Financial Reporting Council has called for auditors to do more before signifying off companies as going concerns, following a spate of high-profile accountancy scandals.

The City watchdog has published a series of proposals aimed at improving auditing standards. They include ensuring auditors make “greater effort to more robustly challenge management assessment of going concern, thoroughly test the adequacy of supporting evidence, evaluate the risk of management bias and make greater use of the viability statement”.

In addition, the FRC is calling for improved transparency. Under the proposals, auditors would have to provide a statement on whether the management’s assessment is appropriate and explain how they have come to that conclusion.

The consultation – which closes on 7 June – follows a raft of high-profile accountancy scandals that auditors failed to spot.

Café chain Patisserie Holdings had its accounts signed off by Grant Thornton in 2015, 2006 and 2017, only for a £40m black hole to be discovered in its accounts in 2018. And last year, the FRC fined PricewaterhouseCoopers £10m over its 2014 audit of department store group BHS. The Big Four firm had signed off the business as a growing concern just days before its sale for £1. BHS collapsed into administration two year later with debts of £1.3bn. The FRC is investigating Grant Thornton over its role as auditor to Patisserie Holdings.

Meanwhile, shareholders in the South African-owner of Poundland, Steinhoff, are suing Deloitte after an accounting scandal saw the retailer come close to collapse.