2020/21 Reporting Season: Q&A – common COVID-19 accounting and auditing issues
4 January 2021: Kirsty Jones and Cerys Freemantle, Professional Consultants at ICAEW’s Technical Advisory Service, answer some of the most frequently asked accounting and auditing issues as part of the Audit and Assurance and Financial Reporting faculties' going concern event.
The impacts of COVID and Brexit
On the issue of the simultaneous impact of the pandemic and Brexit, Kirsty Jones, Professional Consultant at ICAEW's Technical Advisory Service, warned: "We can't underestimate that both of these major issues are going to run alongside each other, definitely into the Spring of next year. It's not going to be an easy ride, unfortunately. One issue is bad enough in isolation, but with both Brexit and COVID-19 happening together, it's going to make things a little bit trickier."
Jones highlighted the need to speak to clients regularly and 'keep the dialogue going' to ensure clients are thinking about potential issues. This will enable accountants and auditors to plan ahead if additional work or additional procedure could be required.
Jones's Technical Advisory Service colleague, Cerys Freemantle warned the double whammy would create a long list of challenges that would impact clients and the accounting sector. She stressed the importance of following all the latest Brexit and COVID-related developments. The Technical Advisory Service will continue to issue updates as they had done during the development of the pandemic. Operational issues may initially be the focus but then the focus will need to shift to financial reporting issues.
"Unfortunately, business as usual is still a long way off for us at the moment," she added.
In terms of audit, Jones said one of the biggest Brexit challenges was probably access to information, especially when dealing with companies with overseas clients. But she noted it was likely that adjustments during the pandemic may have inadvertently helped the sector prepare for the fallout from Brexit. "We've already had to think about auditing differently, and many are carrying out remote audits."
Travel restrictions and areas in the higher tiers illustrate this. It would impact many clients, said Freemantle, if the auditor was unable to attend stocktakes physically. "If you've got December year ends coming up, you need to think ahead in terms of what procedures you can put in place if you can't attend stocktakes physically," Freemantle said.
True and fair overrides
The Q&A webinar also addressed the controversial issue of the use of true and fair overrides in the context of when a grant like the COVID-19 business grants might be receivable for accounting and tax purposes.
But Jones pointed out these overrides are used extremely rarely. "The accounting needs to be right. The ICAEW code of ethics also kicks in here. We can't associate ourselves with misleading information – we can't just do something because it works better for tax, that's not a good enough reason to warrant that."
Freemantle added: "FRS 102 tells us we must recognise it when it's receivable. When it's receivable, we account for it. The accounting standard does not give us wiggle room to match it off against future costs."
Revised ISA (UK) 570
Discussions also focused on the revised ISA 570 standard, which Jones described as one of the 'bigger headline changes'. Jones advised attendees to think about going concern much earlier in the process due to the substantial increase in work effort required.
The Technical Advisory Service receives a high volume of calls around going concern and standard disclosures in audit reports, especially concerning COVID-19. "There isn't a boilerplate of standard disclosure – it needs to be entity-specific," Freemantle cautioned. " I cannot emphasise enough that we do not use standard or boilerplate disclosure." She explained that in some cases if we see disclosure of material uncertainties becoming more common due to COVID-19, where an entity has no concerns, there may be an argument to disclose information about why there are no issues to report.
The webcast referred to in this article was recorded as part of a virtual event 'Going concern and resilience: lessons learned from COVID-19', hosted by ICAEW’s Financial Reporting Faculty and Audit and Assurance Faculty on 30 October 2020.