Global Economic Crisis: What Auditors Have Learned from It
The Financial Reporting Council has launched the Panel of Inquiry that will dig up lessons from the 2008 economic crisis based on experiences of both the companies and their auditors and will propose major changes to improve how these firms address going concern and liquidity risks matters.
Relevant results of the inquiry will be incorporated into the work of the FRC and Department for Business Innovation and Skills (BIS) on the back of the investigation conducted by the House of Lords Economic Affairs Committee regarding the auditors’ role during the economic crisis.
The panel will release its preliminary findings on summer and final recommendations by the end of year, which will be weighed by the FRC together with the responses to its paper ‘Effective Corporate Stewardship’.
FRC Chairman Baroness Hogg said the Panel of Inquiry aims to capture the lessons in the economic crisis, develop guidance and share best practices in dealing with liquidity risks issues in a wider scale, emphasizing the “need for guidance at a time when bank lending to companies was being dramatically curtailed.”
The inquiry according to the FRC will prop up recommendations for directors to describe in detail how they ensure reliability of information on which a management is based and for audit committees to explain their participation in ensuring the integrity of annual reports.
Lord Sharman who will lead the panel said they would expect to receive inputs in written form from different parties interested in this matter. The other members include David Pitt-Watson and Roger Marshall.
Citing the inquiry’s terms of reference, the FRC said the panel is designed to assess how companies make sure that the internal information used in monitoring going concern and liquidity risks is adequate, timely and reliable; how the board and audit committees address the importance of these issues; and how going concern and liquidity risk matters can be incorporated into other aspects of stewardship and reporting.
Based on this structure, the panel will particularly consider whether the guidance released by FRC for UK companies addressed the needs of firms that face going concern and liquidity risks, whether the International Standard on Auditing (UK and Ireland) 570 – Going Concern should be developed following the 2008 economic crisis and whether the Code and the Listing Rules were timely and relevant for all stakeholders.