Users of financial statements put significant reliance on auditors for the reliability of financial information they use to make decisions. The role of an auditor as the protector of public interests has never been more important than these times. The impact of COVID-19 pandemic on the business, economy, and future earnings is unprecedented. Entities are putting their best efforts to adjust to the uncertainty and unpredictability caused by this pandemic to business operations including financial reporting & disclosures in financial statements, laws & regulations, and even new transactions such as receipt of subsidies from the government.
Like other professions, this global pandemic has also significantly impacted on the work of auditors. The new or intensified risks may not be considered or considered differently when planning the audit. Auditors now have to modify or to perform alternate and additional procedures as may be appropriate, to obtain sufficient & appropriate audit evidence on which to base their opinion. Auditors have to face practical challenges that many have never experienced such as travel restrictions, stay at home requirements from government, and access to people & information. Professional skepticism should be top of mind in performing audit procedures.
When auditing remotely, make sure the audit team has the right technological infrastructure in place and that staff members have been adequately trained. If the client has paper books or records, ensure that they have access to relevant files, then develop a plan to address the authenticity of documents that have to be scanned or copied (e.g., by confirming directly with a third party).
While designing and performing audit procedures to obtain sufficient & appropriate audit evidence, the following significant areas should be specially focused
Planning and Risk Assessment
The impact of COVID-19 on
- Risk assessment already made.
- A planned approach to new or revised risk arisen due to pandemic.
- Auditor’s understanding of the system of internal controls and control environment.
- Planned reliance on the system of internal controls.
Responding to the Assessed Risks
- Ability to obtain sufficient & appropriate audit evidence as there may be access issues such as stock count may not be possible and alternate procedures may be needed.
- More focus should be placed on adjustments made in the closing process of financial statements.
- Overall presentation financial statements and whether adequate disclosures are made.
Accounting Estimates Made by Management
- Special focus on cash flow forecasts, discount rates, impairment, doubtful debts, etc.
- Whether further training is needed to audit team members.
- Changes to regulatory factors that may affect accounting estimates.
- Data is used by management is appropriate and reliable.
- Whether valuation specialists are needed.
Subsequent Events
Due to pandemic, reporting deadlines are shifting that’s why increasing the period between financial statements date and auditor’s report date. Greater focus should be put on whether material subsequent events related to COVID-19 have been appropriately adjusted or disclosed in financial statements.
Going Concern
- Whether COVID-19 has materially affected the auditor’s evaluation of appropriateness going concern assumption.
- Whether the entity has access to sufficient liquidity and can remain solvent through the period of public health restrictions and beyond.
- Evaluating the degree of business disruption is complex (i.e., will correlations from past consumer behavior and business practices still apply after the crisis).
Forming an Opinion and Reporting
Covid-19 may result in a rise in modifications to the auditor’s opinion due to, for example, issues related to material misstatement of the financial statements or more circumstances where there is an inability to obtain sufficient appropriate audit evidence.
The auditor needs to focus on whether all key aspects of the audit have been appropriately addressed, such as:
- Due to the fast-changing nature of this issue, consider the areas where further evidence may be required from management.
- The impact of changing laws or regulations.
- Whether new key audit matters need to be included in the auditor’s report.
(Reference: IAASB Staff Audit Practice Alert March 2020)