The Financial reporting Council (FRC) has opened an investigation under its enforcement procedures into auditor’s audit of Carillion. The investigation will cover the years ended 2014 to 2016, and additional work carried out during 2017. The investigation will be conducted by the FRC’s enforcement division and will consider whether the auditor breached any relevant requirements, in particular the ethical and technical standards for auditors. Several areas of auditor’s work will be examined, including the audit of the company’s use and disclosure of the going concern basis of accounting, estimates and recognition of revenue on significant contracts and accounting for pensions. The FRC has promised to conduct the investigation as quickly and thoroughly as possible. It said it is also progressing with urgent enquiries into the conduct of professional accountants within Carillion in connection with the preparation of the financial statements and other financial reporting obligations under the Accountancy Scheme. The FRC is liaising with the Official receiver, the Financial Conduct Authority, the Insolvency Service and Pensions Regulator to ensure there is a joined-up approach to the investigation of all matters arising from the collapse of Carillion. (Extracted from PQ magazine 29 January 2018)
Required:
Based on the above scenarios critically examine the social and economic consequences of such audit failures and discuss potential factors that compromise audit quality of the above company and identify the practical difficulties faced by the audit team in obtaining sufficient audit evidence to support going concern status of the company. (100 marks)
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