Technical helpsheet highlighting important areas affecting auditing in challenging times.
In what has, and continues to be, a challenging period for auditors, ICAEW’s Technical Advisory Service highlights hot topics.
Members may also wish to refer to the following related helpsheets:
COVID 19 - Going concern
The definition of going concern; management and auditor responsibilities relating to going concern; and the implications for the audit report have not changed as a result of the coronavirus pandemic. Nevertheless, a range of resources have been produced to assist auditors with going concern related considerations during these difficult times including the article Coronavirus, going concern and the auditor’s report, the guide Coronavirus: (COVID-19): Considering going concern and the guide Coronavirus: Introducing reverse stress testing.
COVID 19 - Stocktake attendance
The requirements of ISA (UK) 501 Audit Evidence – Specific Considerations for Selected Items have not changed as a result of COVID-19 – it still requires attendance at physical inventory counting where inventory is material, unless impracticable. The coronavirus pandemic has, however, made physical attendance at inventory counts impracticable in many cases. Auditors have therefore been required to look to alternative procedures to try and obtain sufficient appropriate audit evidence. If alternative procedures are not possible, or do not provide sufficient appropriate audit evidence, there may be no alternative to a limitation of scope in the audit opinion. Further guidance on the considerations and answers to common questions are available in the article Coronavirus (COVID-19): Considerations for inventory audit testing and Remote auditing frequently asked questions.
COVID 19 - Emphasis of matter paragraphs
Emphasis of matter paragraphs are used where an auditor judges a matter presented or disclosed in the financial statements to be of such importance that it is fundamental to users’ understanding of the financial statements. Whilst coronavirus may lead to such a consideration, even in the unprecedented circumstances brought about by the pandemic, such paragraphs are not expected to be commonplace. Widespread use of emphasis of matter paragraphs may diminish the effectiveness of the auditor’s communication about important matters. Further information, including relevant examples, is available in the guide How to report an emphasis of matter under COVID-19: a guide for auditors.
COVID 19 - Wider accounting issues
The impact of the pandemic on the financial statements will vary considerably between different entities and their particular facts and circumstances. Auditors may wish to refer to the Checklist: implications of COVID-19 for the preparation of accounts under FRS 102 and/or Checklist: implications of COVID-19 for the preparation of micro-entity accounts (FRS 105) (as appropriate) which highlight key areas for consideration. The Coronavirus UK GAAP hub also offers access to a wide range of resources and guidance.
As a result of the pandemic, extensions to filing deadlines are available for many organisations. Guidance on these extensions is available in the Coronavirus: Filing deadlines guide produced by the Financial Reporting Faculty. Auditors should effectively utilise any extension taken by their clients to undertake the additional audit procedures, and gather further audit evidence, which may be required in response to the additional risks and uncertainties arising out of these unprecedented times.
The current economic environment has given rise to increased fraud risk, particularly with respect to coronavirus-related support schemes, such as the Coronavirus Job Retention Scheme. Auditors should remain vigilant, exercise significant professional scepticism and where appropriate, carefully consider their anti-money laundering reporting obligations. Further information is available in the article Fraudulent COVID-19 claims: an ICAEW Chartered Accountant’s responsibilities.
Changes to international standards on auditing (ISAs)
Revisions to a number of UK auditing standards are effective for periods commencing on or after 15 December 2019 (early adoption permitted). These introduce additional requirements around going concern, reporting on irregularities and auditing estimates. More detail on these changes is available in the helpsheet Revisions to auditing standards from 15 December 2019.
Brexit continues to cause uncertainties for businesses and auditors need to be considering the implications for their audit clients. Further guidance available on The impact of Brexit on audit hub page.
If in doubt seek advice
ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.
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