Brexit and COVID drive audit process rethink
16 February 2021: The double whammy of Brexit and COVID has prompted an important focus on approaches to audit that could prove beneficial to auditors and clients alike.
The pandemic’s huge impact on business, combined with the more recent ramifications of the UK’s departure from the EU, are forcing auditors to think hard about what they do, how they do it and re-evaluate the risks to business.
Paul Winrow, Technical Partner at MHA MacIntyre Hudson, says the two issues combined had presented the audit community with an opportunity to approach audits in a fresh way. “Auditors have a tendency to approach audits by doing the same as they did last year,” comments Winrow. “This is a useful opportunity to think again about why we’re doing audits, how we do them and what the risks are.”
In particular, Winrow believes the current environment means the onus is on auditors to think carefully about how business risks have changed. At the same time, the focus on wider business controls is particularly important as the uncertainty caused by the pandemic, combined with potential Brexit disruption, ramps up the focus on the viability of businesses and adds a layer of complexity surrounding going concern assessments.
Donna Wilcox, Technical Senior Manager at RSM UK, adds that COVID hit some clients sooner and harder than Brexit and meant many were unable to devote as much time as they would have liked to Brexit preparations. “In terms of financial reporting, the impact has been quite similar in terms of impairment and going concern. It’s about reemphasizing the need for professional scepticism,” says Wilcox.
Winrow and Wilcox both contributed to updated guidance from ICAEW to help steer auditors through the new challenges presented by Brexit. Brexit and audit: risk factors provides auditors with a framework for analysis of how Brexit-related risks could impact on the firms they are auditing.
Meanwhile, ICAEW has also produced a practical checklist for audit firms that suggests ten questions to help auditors develop a consistent approach to Brexit across their practice.
“There is a lot to consider, so our objective was to share ideas, help focus minds and share best practice about how to approach audits,” says Wilcox. In particular, she believes the fast-moving situation means that ongoing dialogue with clients is more important than ever “to have relevant conversations about issues when they are top of clients’ minds.”
Earlier this month, the IFRS Foundation published a document designed to help preparers of IFRS accounts through the intricacies of applying going concern requirements, in response to the current volatile economic conditions. Stakeholders are increasingly concerned about the impact of reduced revenue, profitability and liquidity due to COVID-19 and this has increased the importance of going concern assessments and related disclosures, the document warns.