Methodology - Stop press
The purpose of the ‘Stop press’ section is to keep subscribers aware of important developments that have not yet been incorporated into the main text. Each item will give an indication of when it expected to be incorporated into the main text. When this occurs, the item will be removed from ‘Stop press’ and will be listed under ‘What's changed?’
Two revised ISAs have been issued by the Financial Reporting Council (FRC) and are effective for financial periods commencing on or after 15 December 2019. Our products are currently in the process of being updated for the changes. A brief summary of the revised standards is below.
ISA (UK) 540 Auditing Accounting Estimates and Related Disclosures
ISA (UK) 540 (Revised December 2018) Auditing Accounting Estimates and Related Disclosures was developed in response to a changing business environment, increasing use and complexity of estimates in financial reporting and growing concerns from regulators and others that auditors were not always applying an appropriate level of professional scepticism in relation to such estimates.
Although partially driven by changes in accounting standards affecting the use of estimates in accounting for loan provisions and insurance contracts, the standard is intended to apply to all estimates and all audits and sets out a scalable, risk-based approach.
ISA (UK) 570 Going Concern
ISA (UK) 570 (Revised September 2019) Going Concern increases the work auditors are required to do when assessing whether an entity is a going concern. Auditors are required to identify events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern and whether or not a material uncertainty related to going concern exists. Auditors then need to gather sufficient and appropriate audit evidence to enable them to conclude on management’s going concern assumption.
The FRC Guidance suggests that all companies (and therefore their audit committees) need to consider going concern and potential material uncertainties for a period of at least 12 months from the date that the financial statements are authorised for issue. They need to consider this in the light of the true and fair requirement under CA 2006, s. 393, and the wider concept of solvency and liquidity that are required in the assessment of risk and uncertainty for the company.
Conforming Amendments to Standards Arising From ISA (UK) 540 (Revised)
In January 2020, the FRC released eight updated ISAs (UK), amended to include conforming amendments arising from the revision of ISA (UK) 540 (Revised) – Auditing Accounting Estimates and Related Disclosures.
All of the conforming amendments have an effective date of 15 December 2019, and were approved by the FRC Board in December 2018. The conforming changes were included as an Annexure to ISA (UK) 540, and have now been added to the text of each standard.
The revised ISAs (UK) are: 200, 230, 240, 260, 500, 580, 700 and 701.
Guidance will be updated in the near future to reflect these.
FRC Ethical Standard
In December 2019, the FRC released a new 2019 Ethical Standard applicable for periods beginning on or after 15 March 2020. This was drafted in response to the International Code of Ethics released by IESBA which was effective from mid-2019. The overarching ethical principles haven’t changed, but the standard has been restructured and simplified to help enhance application and compliance. Guidance on the FRC Ethical Standard in the Compliance section will be updated in the near future to reflect the new Ethical Standard.