Auditors along with all other organisations have had to reconsider working practices and how to audit organisations remotely.
Whilst auditors like to look into the ‘whites of your eyes’ when asking difficult questions it just does not have the same impact through a computer screen!
Reviewing systems, obtaining appropriate evidence and challenging management has meant auditors have had to re-assess how they obtain the necessary assurance that financial statements are free from material error.
Therefore, in this period auditors need to consider the impact of COVID-19 on:
The auditor’s risk assessment, and whether it needs to be revised;
How the auditor gathers sufficient, appropriate audit evidence, recognising that the planned audit approach may need to change, and alternative procedures developed, particularly in group audit engagements. The auditor must be able to gather the necessary evidence to be able to report or consider modifying their audit opinion;
The auditor’s assessment of going concern and the prospects of an audited organisation, given that uncertainty about the global economy and the immediate outlook for many organisations has increased;
The adequacy of disclosures made by management about the impact on the organisation of COVID-19, so that users of the financial statements are properly informed, and the organisation’s prospects and how they might be affected are described, recognising the high degree of uncertainty; and
The need for the auditor to reassess key aspects of their audit as a result of the fast changing situation, recognising that this assessment will take place right up to the point of signing the auditor’s report, and may need the provision of further evidence.
Auditors will also need to engage with organisations they audit to ensure that:
It should be noted that the scope of the financial statements audit and the regularity audit have not changed due to the impact of COVID 19.
In respect of the regularity audit the ESFA have confirmed in its supplementary guidance that they are not seeking any additional assurance from reporting accountants. Should matters be identified then the auditor will take account of a range of mitigating factors when determining the implications for reporting.
These may include:
Capacity: To what extent were the governance and control arrangements. Staffing levels and operations affected by COVID 19? Were alternative arrangements considered, was there anything to suggest the approach taken was not reasonable and practical under the circumstances?
Proactivity: At what point was the issue identified and was third party guidance sought?
Reaction: Was retrospective or redressive action taken, if appropriate?
Evidence: Has an audit trail of documentation been retained that demonstrates the decision making process and rationale behind the actions taken
If you have any questions about the impact of COVID 19 on the auditors risk assessment please contact us.