2020/21 Reporting Season: accountants face up to exceptional challenges
2 November 2020: Coronavirus, Brexit and the impacts of climate change add up to a reporting season like no other for chartered accountants, writes ICAEW CEO Michael Izza.
The coming reporting season will be unlike any other members have faced. With the unprecedented uncertainty caused by COVID-19 and the further significant disruption that undoubtedly lies ahead, they face more challenges than ever in preparing and auditing financial statements.
In addition to COVID-19, members face further reporting challenges relating to Brexit, with the transition period ending on 31 December 2020, and the impacts of climate change, which came into sharper focus in 2019.
These developments are likely to affect several areas of financial statements. Investors and other users will want information that explains clearly how directors have assessed and responded to the implications for the business. Transparent, forward-looking and entity-specific disclosures will be critical.
Investors and other users will particularly want to understand the extent to which there are material uncertainties that cast doubt on an entity’s ability to continue as a going concern. More disclosures of material uncertainties are likely to be necessary. Directors will need to review all areas of the financial statements that are subject to significant judgment and estimation uncertainty. Forecasting will play an important role, in particular when conducting impairment and going concern reviews, and the level of uncertainty may require recourse to a wider range of scenarios and assumptions.
Auditors will need to exercise and demonstrate appropriate levels of professional scepticism. Heightened uncertainty relating to accounting estimates and the going concern assumption may well require an approach that involves seeking more or better-quality corroborative evidence, and evidence from different sources. Where sufficient appropriate evidence is not available and the risk of misstatement cannot be reduced, there are of course implications for the audit report. Even where evidence is available, auditors are likely to need to refer to going concern issues in the auditor's report in several different ways.
Given the unparalleled challenges of the coming reporting season and the likely need for additional focus on the transparency of reporting, I urge those involved in preparing annual reports to commence the planning process early, engaging across their organisations to gather the information needed, and with the auditors. It may be sensible too to consider the scope for flexing reporting deadlines, taking advantage of filing extensions, given the exceptional challenges that will be faced by preparers and auditors alike in both their professional and personal lives.
ICAEW has a range of relevant resources available and will continue to prioritise and develop these in response to the evolving situation. We offer specific online technical resources relating to COVID-19, including items for preparers and auditors, which are freely available to all.