This alert outlines ICAEW Professional Standards support for audit firms to use their judgement to deal with these exceptional circumstances, and we signpost guidance to assist firms in making these decisions and working through the consequences in their audit and accountancy work.
Audit acceptance and continuance decisions
Audit firms will need to consider their position in relation to UK company and charity audit clients where owners, donors, key customers or suppliers, beneficiaries and/or operations have close links to Russia. In addition to anti-money laundering and sanctions requirements, considerations will include reputational risk and the competence and resources available to the firm to deliver a high-quality audit in potentially complex and uncertain circumstances.
It is important to note that all UK company and charity audits still need to be conducted by a registered auditor, but individual firms must decide for themselves whether or not they wish to undertake a particular statutory audit.
Firms will be conscious of the need to act ethically, and not disadvantage a client without good reason. It is possible that following a decision to resign from an audit at short notice due to reputational risks from Russian connections, the company might take legal action and/or complain to ICAEW. In these cases, while we would need to understand the precise circumstances behind the resignation, and that the correct process was followed, firms should be reassured that we would not seek to challenge their reasonable judgements in such a case.
In making these difficult decisions, firms should always ensure that they consider legal and contractual obligations to the client, but we view these principally as commercial matters rather than matters for regulatory oversight or interference.
Refer to Auditor Resignation – Auditor responsibilities for further guidance. If you have any specific questions, please do not hesitate to contact the ICAEW Ethics Advisors who will be happy to assist.
Key audit judgements and challenges
Audits of companies and groups with customers, suppliers, operations or other links to Ukraine, Russia and surrounding countries will obviously be affected by the Russian invasion.
New judgements and challenges may arise from:
- Firm’s audit work and use of group auditors located in affected countries.
- Audit client links to sanctioned entities such as loans from banks.
- Impairment of assets, loans or other debtors where located in Ukraine or Russia.
- Going concern – including in relation to cessation of trading, disruption of supply chains, availability of credit insurance or legal claims from voluntary breach of contract.
ICAEW has produced detailed guidance on all these issues, together with the wider points relating to anti-money laundering and the sanctions regime that affect audit and non-audit clients equally. It is important that auditors fully document their response to these new judgements and challenges.
Despite these unique and tragic circumstances, the ISAs (UK) still apply, and auditors must continue to comply with them.
Resources
Changes to UK sanctions in response to developments in Ukraine
Frequently asked questions about changes to UK sanctions against Russia, in response to the conflict in Ukraine.
Ukraine crisis: central resource hub
Resources, news and features on the impact of the Ukraine crisis on accountancy, business and the wider economy.
