In an audit environment that is evolving through technology and the impact of external reviews, COVID-19 has created another layer of challenge and complexity that is having a profound effect on the way auditors engage with their clients.
What have the regulators said?
Last month, the Auditing and Assurance Standards Board (AUASB) in collaboration with The Australian Accounting Standards Board (AASB), released a publication ‘The impact of Coronavirus on Financial Reporting and the Auditor’s Considerations’ which set out to provide some answers to key questions arising from the impact of COVID-19 on auditing. Click here to download the report.
Preparers must consider
- How to assess whether the impacts of COVID-19 are material to the entity?
- When to adjust the financial statements, including where events continue to develop after the reporting period ends?
- What disclosures might be required of the entity (including any continuous disclosure obligations for listed entities)?
Auditors need to consider
- Have TCWG performed appropriate risk assessment procedures and assessed the impact of COVID-19 on the entity and the financial report, including re-assessing the appropriateness of the going concern basis of accounting?
- Are the disclosures in the financial report enough, and if not, what are the implications for the auditor’s report?
- Do any travel bans affecting audit personnel cause a potential scope limitation in performing the audit work?
Ongoing concern is a core focus
Clearly, a core focus for auditors currently relates to going concern. Asset impairment including property valuation is also likely to be an enhanced risk. All clients will need to assess how their business will be affected by COVID-19. Audit firms should be able to provide their clients with pro-forma documents to assist with financial assessment.
With your clients, have relevant stakeholders and decision makers met to discuss the impact of COVID-19 on business performance and profitability. Directors and key managers should already be identifying key risks and establishing a direction for their businesses under the assumption that ‘business as normal’ is unlikely to eventuate for some time. For some businesses, the benefits will be positive. For other, the impact of COVID-19 may move them closer to or into insolvency. With these clients, it may be challenging to determine how much of the financial deterioration was due to COVID-19 and how much was due to underlying structural concerns.
Access to client data is a challenge
From a practical point of view, access to information required to complete audits has become more difficult as businesses transition to work from home. For many audit clients already struggling with the transition to a paperless office environment, the urgency to go electronic becomes even stronger. In the longer term, this will be of great benefit to auditors seeking to streamline core audit processes focusing on the collection, processing and analysis of data.
Audit firms face similar challenges as they are forced to develop systems and processes that allow for easier data collection through the cloud. Prior to COVID-19, technology was already allowing for greater efficiencies around workflow management and production.
In the past year or so, the National Audits Group has made significant inroads through the adoption of CaseWare Xtend, which allows the NAG to forge stronger and closer online connections with clients through the ability to:
- Securely request, file and store sensitive client data.
- Collaborate and communicate with clients more effectively and in real time, allowing for a more adaptable and transparent workflow;
- Manage client files and requests in one centralised location that is accessible to all parties involved.
Of course, it’s not just about the software. Audit firms wishing to focus on electronic records need to invest time revisiting required document checklists, disclosures and financial statements. National Audits Group started this process off by focusing on a few key clients and developing a step by step process to transition clients to a cloud-based data management platform. The COVID-19 crisis creates opportunity to accelerate this process for progressive audit firms, but also creates new challenges as firms deal with behavioural and technology-based issues.
Will online auditing become the new norm?
One key change to the industry as a result of COVID-19 will be an increasing emphasis on online auditing. Many clients and audit firms have resisted an online approach to audit as it has the potential to disrupt the working relationship. Progressive firms understand that online auditing can also lead to significant improvement in the efficiency of compliance tasks.
It’s important that in going electronic, there is an even stronger focus on the personal touch, through identifying and maximising client touch points and by using videoconferencing technologies including Microsoft Teams and Zoom. Professional firms already experienced with online communication portals may see an improvement in communication. The relationship between firm and client becomes more collaborative and consultative. There’s more opportunity to streamline compliance tasks and create time and capacity to add value in other areas, including risk management and profit generation.
COVID-19 gives rise to new and rapidly changing conditions that auditors may not have previously encountered. Auditors should be alert, exercise professional scepticism and apply professional judgement about the potential for these conditions to give rise to possible material misstatements or other auditor reporting issues.
The AUASB has developed and released a publication with the AASB (AASB–AUASB Joint FAQ) which provides high level guidance for financial report preparers and auditors on the risks arising as a result of the COVID-19 epidemic. Click here to access the FAQ.
The National Audits Group is well prepared to manage audit clients in the current environment, as it’s already made many of the changes to technology and processes required to take auditing online. These changes are already leading to enhanced client relationships through a focus on value added services.
If you’d like to discuss the implications of COVID-19 on your audit clients or how NAG has taken positive steps into the future of auditing in Australia, give Steven Watson, Managing Director, a call.
Steven Watson | National Audits Group | https://www.audits.com.au/
As Managing Director of National Audits Group, Steven provides assurance and advisory services to all types of entities in a diverse range of industries. His team has an enduring commitment to efficient, quality and value of auditing services.
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