Coronavirus: FRC publishes updated audit guidance
20 March 2020: the Financial Reporting Council has issued updated guidance for auditors following the outbreak of the Covid-19 pandemic, calling for particular attention on areas including going concern and the gathering of audit evidence.
In a statement the Financial Reporting Council (FRC) said that uncertainty about the immediate outlook for many companies has “increased sharply”, with consequences for companies proposing to report results in the coming months, and for their auditors.
The watchdog expressed concerns that the coronavirus outbreak should not undermine the delivery of high-quality audits, but given current circumstances, additional time may be required to complete audits, even at the risk of delaying company reporting.
The statement noted that companies and auditors are facing practical difficulties in preparing accounts and carrying out audits due to restrictions on travel, meetings and access to company sites in certain jurisdictions. This, in turn, means alternative audit procedures to gather sufficient, appropriate audit evidence will need to be developed.
Specific areas that auditors will need to give particular attention to include the auditor’s assessment of going concern and the prospects of an audited company given uncertainty about the global economy and the auditor’s wider risk assessment and if it needs to be revised.
Another key area of focus should be on how the auditor gathers sufficient, appropriate audit evidence, recognising that the planned audit approach may need to change, and alternative procedures developed, especially in group audit engagements.
The auditor must be also able to gather the necessary evidence to be able to report or consider modifying their audit opinion.
It also called for the auditor to reassess key aspects of their audit and recognise that the assessment will take place right up to the point of signing the auditor’s report and may need the provision of further evidence and information by management.
Additionally, where current circumstances have had a significant impact on the delivery of the audit, the auditor will need to consider how to explain this in their report, for example, by reporting it as a key audit matter.
The FRC also highlighted the need for auditors to engage with the entities they audit to ensure that there are clear expectations as to the expected levels of disclosure revealed in the annual reports to show the impact and risk of COVID-19 on the company.
Companies, it says, need to understand how vital it is for auditors to be given enough time and support to carry out their work to an appropriate standard, including any reassessing work done to reflect changed circumstances, which may in some cases, mean companies having to reconsider their reporting deadlines.
It is worth noting that companies and auditors will still need to be aware of any filing requirements, for example, to the FCA or PRA. Companies House can grant extensions for companies impacted by the coronavirus, and those affected should contact the relevant regulators.
If auditors are unable to obtain sufficient, appropriate audit evidence they will need to consider making any necessary modifications to their audit opinion.
The FRC says it is keeping in weekly touch with the UK’s biggest audit firms and is actively considering what additional advice and guidance may be necessary to support the profession in its bid to successfully deliver audits over the next few months.
ICAEW is working with members to understand the impact of the coronavirus outbreak. In a message to all members, Institute CEO Michael Izza asked those with ideas for additional support, guidance or insights to complete the following form.
ICAEW has also published its own guide: Coronavirus (COVID-19): Considerations for Group Auditors designed for UK group auditors with component auditors based in China or other jurisdictions impacted by the pandemic. It offers practical considerations in relation to the work of component auditors to address the requirements in ISAs (UK).