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FRC updates ICAEW on COVID-19 bulletin for auditors

15 April 2020: the Financial Reporting Council’s Mark Babington joined ICAEW’s Audit and Assurance Faculty for a webinar to discuss key aspects of its guidance for auditors affected by coronavirus.

Babington, Acting Executive Director, Regulatory Standards at the FRC began by emphasising that the FRC recognises this is an unprecedented time and is working hard to ensure guidance is available to auditors to help deal with the ramifications. However, he added that it is vital to note that the auditor must still gather sufficient, appropriate audit evidence if they are to be able to issue an unmodified opinion.

To do this, auditors should be innovative in their approach to obtaining evidence. For instance, they may “attend” a stocktake remotely, using a video link. However, the auditor should consider the reliability of alternative evidence sources and document their conclusions.

The auditor’s risk assessment will look very different to previous years and may well be changing on a daily or weekly basis. The auditor should remember to consider the practical aspects of homeworking which may impact the operation of internal controls, systems or procedures. This will mean that the risks of controls not being effective may rise, including an increased risk of fraud, both from within and outside the company, as staff grapple with new ways of working. 

Dialogue with those charged with governance will be vital, as it is unlikely that the previous audit plans or timetables will still be appropriate. Filing deadlines can be extended for both private and listed companies and directors should take advantage of this, to ensure enough time is available to complete the audit. What is important, now more than ever, is that high-quality information is available to the market or to other capital providers. Even non-listed companies may well need audited information to supply to banks or other potential lenders when seeking finance.

On the issue of going concern, Babington highlighted the recent issue of ISA (UK) 570 (Revised September 2019). Whilst the standard is not yet effective, it is available for early adoption and contains much more detail on what is required than its predecessor, so auditors will ideally consider its requirements now.

There will undoubtedly be more entities reporting material uncertainties due to going concern and for some, modifications to the audit report will be needed. The auditor should ensure that disclosure of these issues is specific and detailed enough to be of value and that events are considered right up until the financial statements are authorised. 

Where key audit matters are required to be reported, there is an opportunity for the auditor to explain how the current pandemic situation has impacted the audit approach and conclusions. The FRC has not, unlike some national regulators, set out standard disclosures regarding the pandemic as these are not decision useful. 

ICAEW Audit and Assurance Faculty’s Sophie Campkin then questioned Babington on a number of key aspects of the FRC’s guidance, the responses to which included the following information:

  • All FRC guidance on COVID-19 can be found here.
  • These issues affect smaller audits as well as those of public interest entities. If further guidance is needed for these, let the FRC or the ICAEW Audit and Assurance Faculty know.
  • Where audit clients need help with preparing applications for government assistance, this will not usually breach ethical requirements.
  • Public interest entities that were due to tender their audit or rotate partners can apply for an extension.
  • Whilst audit reform issues will not be forgotten, attention is obviously focussed on the current situation.

You can watch the full webinar or refer to the ICAEW Coronavirus Hub and the audit page for more information. 

Julia Penny FCA, is principal of JS Penny Consulting. All views expressed in this article are those of the author in a personal capacity.