8 COVID-19 Tips for Auditors
Working with auditors in preparing and reporting accounting statements has been a crucial activity for all organizations. Apart from being a regulatory requirement, audit procedures also verify the accuracy of their records.
The current COVID-19 scenario has made the auditing process complex. Auditors have never experienced this situation before and it is becoming a real challenge to audit the statements and records without visiting the premises.
As Dec 31st is nearing, auditors and CPA tax accountants will experience an increasing demand to file the audit report for the 2019 calendar year. Here is a roundup of areas that auditors can focus on during COVID-19 to ensure a smooth auditing process.
1. Preparing for Remote Audits
Auditors who have spent a significant time of their professional careers carrying out on-premises audits are in a soup. As per AICPA, audit firms are highly recommended to now schedule meetings, collect evidence and submit their findings remotely. To this end, auditors and accountants need the right technological infrastructure to support your work.
Most importantly, audit firms must ensure that their teams are fully prepared to manage their responsibilities remotely. Coordinate with clients in advance in order to set a process to gain access to their documents. You may have to tweak your audit procedures and add a step that lets you verify the authenticity of their tax reports and other documents.
2. Keep up With Changing Norms
In a few sectors, regulatory bodies have been issuing announcements to define the new scope for auditors. A few bodies, like the Securities and Exchange Commission (SEC), have introduced some relaxations. However, firms offering tax and accounting services must remember that these rules are still evolving.
Auditors can contribute to organizations by giving them a direction and helping them make a comeback in these times. Some solution-oriented methods are offering relevant organizational knowledge and identifying key risk areas.
3. Be Wary About Fraud Risks
These uncertain times are tough on almost everyone. There is a heightened motive for fraudulent activities - especially when there is a threat to one's job security. Moreover, employees may override internal controls to ensure the smooth functioning of their businesses.
Thus, it is advisable to keep a strict eye on such activities to maintain the highest accounting and auditing standards. Identifying fraud risk areas is a crucial part of an auditor's job.
4. Emerging Risk Areas
In these times, accountants and auditors in particular will have to identify new areas of financial risk. You need to go beyond requesting a few documents and offer the right guidance to businesses to eliminate unwarranted risks.
For instance, public accounting firms may have to determine if the organization has utilized the financial support given by the government. Does the company understand the long-term implications of it? Is there a clear understanding of the working capital requirements and cash flow assessments?
5. Evaluate the Going Concern Status of the Organizations
The COVID-19 pandemic has hit a few organizations hard - particularly those in the food industry, hospitality, and brick and mortar sales. As a result, auditors must pay special attention to evaluating the company's going concern status.
Your audit procedures may need to accommodate reliable tax-related assistance to businesses trying to stay afloat during the pandemic. In the case of substantial doubt, auditors will have to mention the same in their financial and accounting statements - irrespective of whether the management's plan seems reasonable. In such cases, an emphasis on matter paragraphs also becomes necessary.
6. Manage Scope Limitations
While working with clients, audit firms can expect some scope limitations. For instance, they may be unable to evaluate the efficacy of internal controls at their client's place.
In these cases, auditors will have to evaluate if their effects are material and pervasive. Although these accounting terms are often said in the same breath, it's time that auditors dig deep into such matters and use their professional judgment to use them appropriately.
The term 'pervasive' describes the effects or possible effects of misstatements on financial statements. Pervasive effects are those that, in the professional judgment of the auditor
- Are not confined to specific elements, accounts, or items of the financial statements
- If so confined, represent or could represent a substantial proportion of the financial statements
- With regard to disclosures, are fundamental to users’ understanding of the financial statements.
In such cases, accountants and auditors can share their opinions, as one qualified, adverse, or disclaimer, depending upon the situation.
7. Subsequent Events
There are two types of subsequent events as per ASC Topic 855: “Subsequent Events,” and the related auditing standards.
For companies that follow the calendar year, COVID-19 did not exist at the balance sheet date but arose subsequently. Also known as Type II events, in this case, auditors must ensure that their accounting reports reflect these circumstances.
Some disclosable subsequent events arising due to the pandemic can include lending and other contract modifications, capital contributions, curtailments or shutdowns of operations, and substantial losses on financial assets measured at fair value.
For companies whose year ends fall in 2020, pandemic-related events may require adjustments to the financial statements or additional disclosures as Type I events. In a few instances, auditors and certified accountants will have to use their professional judgment to classify events as Type I and Type II.
8. Risks, Uncertainties, and Financial Flexibility
Due to the pandemic, management may face serious changes in their estimates. Companies are expected to disclose the risks and uncertainties that can impact these estimates and the functioning of their business unit - in the near-term. Similarly, they must also disclose financial flexibility.
With several businesses mentioning these risks this year, audit firms will have to devote extra focus to these statements. It is the ability to take action that will eliminate these risks.
By focusing on these areas, auditors and CPAs will be able to sail through the unique challenges of COVID-19. Audit firms can also guide their clients in the right direction and offer the required tax-filing and accounting services in these tough times.
Bryan Kesler, CPA is a passionate CPA exam mentor with a mission of helping all CPA Candidates struggling to pass the CPA exam find success. As a business owner and licensed CPA, his priority was to find a firm that could manage his accounting and provide him with CFO services. He...