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Winter is coming

Helping you with the urgent pressures being faced in the forthcoming reporting season: accounting and auditing.

Preparing 2020 accounts – COVID-19

COVID-19 is having a devastating effect on people’s health, way of life and on the economy. Many businesses are suffering from the consequences of the disease as it continues to affect their ability to trade as normal. Some will be seeking new opportunities and perhaps investing while success is particularly uncertain. 

Directors will need to consider how to reflect the impact of COVID-19 on not just the numbers but also the disclosures in the financial statements. Also, COVID-19 could be an opportunity for some reporting entities to bury bad news with 'big bath' or 'kitchen sink' provisions being a temptation for some companies.

The ICAEW Financial Reporting Faculty has created the following checklists highlighting the key factors to consider when planning and preparing accounts in the light of the COVID-19 pandemic. They suggest that careful consideration will need to be given to the deferral of filing deadlines, the recoverability of assets, conditions that existed at and post the balance sheet date, the measurement and classification of liabilities, treatments for the various government grants/loans and directors’ going concern assessments:

To find out more and to access the wealth of specialist financial reporting help including guides and factsheets on topics such as impairment of assets, pointers on going concern considerations, improving disclosures or other general financial reporting resources, visit the financial reporting hub.

IFAC has issued a summary of COVID-19 financial reporting considerations and in the UK, the Financial Reporting Council (FRC) has also issued guidance on a range of implications. To find out more visit the external resources section of the financial reporting hub. 

The Faculty is constantly reviewing the need for guidance to help members focus on what is important and achieve consistency of accounting practice given COVID-19. We would love to hear about financial reporting issues you are facing that we may not have yet covered. If you have insight and ideas for guidance or policy input to standard setters and regulators, please let us know by emailing the Financial Reporting Faculty.

Preparing 2020 accounts – Brexit

Over the past few years Brexit has dominated news in the UK but in recent months it has been side-lined by COVID-19. Brexit is now back as the current transition period comes to an end on 31 December 2020 and organisations are in the process of considering how it will impact their business and taking appropriate actions. 

ICAEW has published a quick-start guide to help organisations prepare for when the transition period has ended including on key business issues such as how you get goods across borders etc.  But these businesses will also have to prepare accounts and get through an audit in coming months.

In February 2020, the Financial Reporting Council and Department for Business, Energy and Industrial Strategy published joint letters for accountants and auditors with information regarding auditing, accounting and corporate reporting standards during the transition period following the UK’s exit from the EU. 

The ICAEW Financial Reporting Faculty has created a short guide sharing some of the typical areas in the accounts that would be affected in times of uncertainty, the need to provide for additional costs, and the extent to which companies should take account of additional information that comes to light after the balance sheet date. It also covers the disclosures required and those that might be useful to provide.

To find out more and to access the wealth of specialist financial reporting help including guides and factsheets on topics including 2020 IFRS accounts2019 IFRS accounts and 2019 UK GAAP accounts or for other general financial reporting resources visit the brexit financial reporting hub.

The Faculty is constantly reviewing the need for guidance to help members focus on what is important and achieve consistency of accounting practice. We would love to hear about financial reporting issues that we may not have yet covered. If you have insight and ideas for guidance or policy input to standard setters and regulators, please let us know by emailing the Financial Reporting Faculty.

Auditing 2020 accounts – COVID-19 and Brexit

COVID-19 has caused significant market upheaval and uncertainty for business and the end of the Brexit transition period is on the horizon. 

Many businesses have faced mandatory closures and reduced customer demand due to lockdown measures. While many governments have pledged financial support for businesses through loan programmes and wage grants, business survival may still be uncertain. Also, the National Crime Agency has warned that criminals are seeking to capitalise on the crisis - most notably with fraudulent claims for the various support schemes. 

The forthcoming reporting season will be extremely challenging for directors and auditors, particularly around complex issues such as going concern assessments, consideration of fraud and error, and accounting for unusual circumstances never foreseen by accounting or auditing standards.

COVID-19 could also be an opportunity for some reporting entities to bury bad news. 'Big bath' or 'kitchen sink' provisions may be a temptation for some companies. The ICAEW Financial Reporting Faculty has created a range of resources sharing some of the typical areas in the accounts that would be affected in times of uncertainty. 

Audit firms will be aware, now more than ever, of the need not only to exercise professional scepticism but to demonstrate that they have done so. On top of this, widespread changes in audit practices driven by COVID-19 have accelerated change and trends already underway in the market including the use of technology. This means that 2020 audits – and many audits in future years – will be different to those performed in the past. 

Importantly, given the various reviews within the audit reform agenda there will be increased regulatory expectations and how the audit profession performs within this crisis will be fundamental for how the future looks. These expectations are set against the backdrop of increased business and financial reporting uncertainty, different audit risk assessments to reflect changes to business systems and internal controls, evolving methodologies to adopt and prepare for important new auditing standards and a move to remote working by finance professionals and auditors. 

IFAC has issued a summary of COVID-19 audit considerations and IFIAR has issued COVID-19 updates, Accountancy Europe has issued a factsheet for European auditors and the PCAOB has issued its response to COVID-19. 

In the UK, the Financial Reporting Council (FRC) has issued guidance on a range of Brexit-related implications and in February 2020, along with the Department for Business, Energy and Industrial Strategy the FRC published joint letters for accountants and auditors in respect of the transition period following the UK’s exit from the EU. 

The ICAEW Audit and Assurance Faculty and Technical Enquiries Service has produced a range of resources addressing and offering practical support on audit considerations relating to COVID-19 and preparing auditors in the run up to Brexit.  

In the June edition of its Audit & Beyond magazine, the Faculty provided practical pointers on a range of issues including auditing the completeness of revenue and the various accounting treatments for financial support schemes. In the October edition, the Faculty looks at the key concerns over how auditors can maintain professional scepticism during the next reporting season. Further articles will be published in the Faculty’s magazine over coming months.

The Faculty has also created help on the most challenging issues such as how to:

On top of this, auditors may be adopting new auditing standards for the first time or introducing new methodologies for December 2020 year ends, for example, ISA 540: Auditing accounting estimates. In due course, the Faculty will also develop guidance on ISA 315 (Revised 2019): Identifying and assessing the risks of material misstatement, and the new quality management standards recently approved by IAASB.

The Audit and Assurance Faculty is working hard to create further guidance in the light of COVID-19, on key areas such as how to report on fraud/irregularity and materiality - these will be published in the coming months. We would love to hear any ideas you have for new resources or practical help that we are not yet covering. If you have insight and ideas for additional guidance or policy input to standard setters and regulators, please let us know by emailing the Audit and Assurance Faculty.

Further resources on the 2020/21 reporting season

Over coming months ICAEW is running a series to examine what shareholders, investors and other stakeholders want from corporate reporting at this difficult time.

 

 

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