The PCAOB has promised to examine whether market intervention is necessary to strengthen investor confidence in auditors’ “going concern” statements — crucial judgments that indicate whether a company is viable for the next 12 months.
The regulator’s focus on going concern opinions, which are made by directors and signed off by auditors, comes as the Big Four accounting firms find themselves under repeated attack over the quality of their work, misconduct, conflicts of interest and their lobbying power. These criticisms have undermined investor trust in the financial statements signed off by the four — Deloitte, EY, PwC and KPMG. These firms are responsible for auditing the vast majority of the world’s largest companies. The PCAOB said this week that it would launch a project to evaluate “whether there is a need for regulatory action . . . in light of concerns from investors about the effectiveness of auditor going concern reporting”.
The PCAOB said it would consider whether to change its standards around going concern evaluations, which currently state that an auditor should flag its worries if it has “substantial doubt” about a company’s ability to survive.
The FRC, the UK accounting watchdog, separately confirmed it had also been working on a project related to going concern statements by auditors.
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