These include: 1) business and production disruptions, 2) supply-chain interruptions, 3) negative impacts on customers, 4) volatility in the equity and debt markets, 5) reduced revenue and cash flows, and 6) other economic consequences. Mandatory lockdown measures were imposed by governments to control the spread of the virus, with individuals having to work remotely from home. For auditors, this means we may no longer be able to travel to the client’s premises and audits may have to be performed remotely.
While so much has changed, the auditor’s requirements for audit quality, documentation and professional standards have not changed. Audit planning is more important than ever.
Here are some key considerations for auditing in the current coronavirus environment:
Remote access and documentation. The standards related to “audit documentation” have not changed and auditors are still required to look at “original source documentation.” It is critical to plan the exchange of information/documents if the client is not open or if the client is working remotely.
Risk identification and internal controls. An understanding regarding how the entity’s control environment has changed from the pre-pandemic time frame to the current time frame needs to be considered. Auditors need to understand how the client’s system of internal controls may have changed during the pandemic in regards to: 1) closing its books, 2) preparing and approving journal entries, 3) preparing and approving financial statements, and 4) processing receipts, disbursements, payroll, etc. Auditors must consider how internal control changes impact their audit strategy and risk assessment
New or different risks. The coronavirus environment may create new risks related to certain concentrations such as: 1) volume of business with one customer, supplier, lender, etc.; 2) availability of material, labor, services, etc. and 3) markets or geographical areas where the entity conducts business. Auditors must understand the impact of these new risks.
Noncompliance with laws and regulations. The risk of noncompliance with laws and regulations may be heightened. During the pandemic, many organizations have found it necessary to participate in various forms of federal economic stimulus funding. As is the case with many federal programs, regulations are put in place to ensure proper use of the funding and these regulations can be complex. The complexity of these regulations, combined with the fact that applications for funding had to be submitted quickly with accounting staff working remotely for the first time, may have led to a heightened risk of inadvertent noncompliance with regulations established by the Treasury and the U.S. Small Business Administration.
Accounting estimates. The assumptions and data supporting certain accounting estimates may be affected by the impact of COVID-19. Auditors should evaluate whether judgments and decisions made by management in making accounting estimates remain reasonable, in light of economic and business developments.
Asset impairment. The impact of COVID-19 may cause asset impairments for some entities. Impairment considerations vary depending on the asset being evaluated. Information about investment values, investment declines, uncollectible receivables, market risks, interest-rate risks, and credit risks are factors that should be considered.