Global Financial Insights – IFRS and Audit Updates May 2025

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update –

1. IFRS Foundation enhances educational material on going concern disclosures

In May 2025, the IFRS Foundation released updated educational material aimed at assisting companies in applying the going concern requirements outlined in IFRS Accounting Standards. This initiative is part of the Foundation’s ongoing efforts to support consistent application of IFRS Standards, particularly in areas requiring significant judgment.

The updated material consolidates existing requirements related to going concern assessments, providing clarity on the disclosure obligations under IFRS Standards. It emphasises the need for transparent reporting when management is aware of material uncertainties that may cast significant doubt on an entity’s ability to continue as a going concern. The guidance also highlights the importance of disclosing significant judgments made in the assessment process, especially in situations where the going concern assumption is borderline.

This educational resource serves as a valuable tool for preparers, auditors, and regulators by illustrating how to effectively communicate going concern assessments in financial statements. It does not introduce new requirements but rather reinforces existing standards to promote high-quality financial reporting. For more detailed information, the full educational material is available on the IFRS Foundation’s website.

Source – International Financial Reporting Standard

2. FASB issues ASU 2025-03 – Clarifying the determination of the accounting acquirer in business combinations involving VIEs

On May 13, 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810) – Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. This update addresses longstanding concerns about inconsistencies in how accounting acquirers are determined in business combinations involving Variable Interest Entities (VIEs), particularly when transactions are structured as equity exchanges.

Under prior guidance, the primary beneficiary of a VIE was automatically deemed the accounting acquirer, preventing entities from applying the broader assessment factors available in other types of business combinations. This restriction created disparities in outcomes between economically similar transactions involving VIEs and those involving voting interest entities. ASU 2025-03 removes this rigidity by requiring that, in equity exchange transactions where the legal acquiree is a VIE that qualifies as a business, the acquirer must be determined using the same factors outlined in Para ASC 805-10-55-12 through 55-15, factors that consider voting rights, governance structures, senior management composition, and the terms of the equity exchange.

The amendment enhances comparability in financial reporting by aligning the treatment of VIEs with that of other entities in acquisition scenarios, particularly in common structures like Up-Cs and de-SPAC transactions. It also allows for the possibility of reverse acquisitions involving VIEs, previously disallowed. The new guidance is effective for all entities for annual periods beginning after December 15, 2026, with early adoption permitted. It is to be applied prospectively, and entities must disclose the nature and reason for the change in accounting principle upon adoption.

Source – Financial Accounting Standards Board

3. FRC final report underscores urgent reform needs in NHS audit market

On 14 May 2025, the Financial Reporting Council (FRC) published the final report of its National Health Service (NHS) Audit Market Study, offering key insights and proposing remedies to address structural issues impacting the long-term resilience of the NHS external audit system. Drawing on data collected between July 2024 and April 2025, including engagement with NHS bodies, audit firms, procurement providers, and regulators, the report confirms that while the NHS audit market is currently more effective than the local authority audit sector, it faces significant challenges that could jeopardise its sustainability.

Notably, 87% of NHS respondents reported concern over the limited choice of audit providers, as only three of the nine active firms operate nationally. A 163% increase in audit fees since 2018-19, driven by regulatory and staffing pressures, alongside a lack of meaningful procurement engagement, has further constrained market capacity. The study identifies three core issues – capacity limitations within audit firms and NHS finance teams, problematic procurement processes, and differing views between stakeholders on the value of audits, particularly regarding Value for Money (VfM) reporting.

To address these, the FRC recommends both immediate and long-term reforms. In the short term, it suggests establishing a single, national procurement framework tailored for NHS audits, improving transparency in audit tendering, and increasing auditor-client engagement. For the longer term, it advocates revisiting the regulatory framework, such as removing or modifying Key Audit Partner (KAP) requirements, reconsidering VfM reporting obligations, and aligning audit timelines with financial planning cycles. The report also opens the door to potentially including NHS audits in the Government’s public provision plans and urges a post-implementation review of national audit procurement strategies before applying them to the NHS context.

These findings will contribute to the Government’s broader local audit reform agenda and inform decisions around the prospective Local Audit Office (LAO), which may assume expanded oversight responsibilities. The FRC commits to continued monitoring of the audit market to ensure reform implementation drives meaningful improvement.

Source – Financial Reporting Council

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