The Impact of COVID-19 on Audit

Authored by Sarah Butler, Head of Audit & Accounting at Caseware Australia & New Zealand, Sarah reviews the impact Covid-19 on audits will likely have for those audits completed during 2020 and beyond.

What a year 2020 is already shaping up to be!  First we had fires, then floods and now a worldwide health pandemic. This year is one for the books already, and we aren’t yet through Q1! Personally, I’m struggling to come to terms with the impact that this crisis will likely have on my family and friends, on businesses, industries and economies. 

But it is also encouraging to see so many people finding ways to love their neighbours and help each other out in this new, unpredictable and unprecedented period. Although far less impacted than industries like tourism, hospitality and entertainment will be, the audit industry faces some rather new and unique issues of its own.  

Accessibility and Collaboration

Despite what is happening in the world, companies will still require audits.  But getting timely access to clients, data, evidence and experts could prove difficult, with people practicing social distancing and working from home.  So, some of the recent advancements in technology could not be more timely.  

Firms using cloud-based technology for their audit files, practice management and client collaboration are already well placed to deal with these issues – anytime, anywhere access to these platforms negates many of the logistical issues.  In turn, clients who have programs like Xero and Quickbooks in place, may be able to provide information requested by auditors from home too.   As for the delivery of this information, in-product dropboxes and portals offer a secure and efficient way to do this. 

For audit firms with Caseware Cloud, remember this is an option for you! Plus, if you haven’t already looked into Xtend ANZ, I encourage you to do so.  This recently released Caseware cloud app makes the process of requesting, receiving and managing the delivery of audit information both simple and safer for both you and your clients and is free to firms with Caseware Cloud and our Audit System template!

Check out this webpage to see what else we’re doing to assist you to work remotely.

Risk Assessment and Disclosures

Between now and 30 June, Those Charged With Governance (‘TCWG’) will need to be carefully assessing the potential impact of the virus on their business, the disclosures in their financial report, and their ability to continue as a going concern – if there was ever a time for going concern to become a key audit focus area, it’s now!  Do they have cash reserves they can use? How long will they last? What is the recoverability of debts? Will they be able to ride this out?

Materiality and risk assessments will also prove challenging for auditors this 30 June audit season, especially for clients where estimates and assumptions are heavily relied upon.  

An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:

* their nature, and
* their carrying amount as at the end of the reporting period.

Reference: AASB 101.25

These disclosures will be important for TCWG to write, and critical to helping users of the financial statements understand how the entity is impacted, both now and into the future – wherever possible they must be comprehensive, and not vague or ambiguous. 

The AASB and the AUASB have worked together to produce a fantastic joint FAQ, which I highly recommend you read, as well as share with your clients:  The Impact of Coronavirus on Financial Reporting and the Auditor’s Considerations. Although reporting obligations are unlikely to change in response to Covid-19, there is the possibility that regulators may need to consider extending lodgement dates.  

So as we head into this strange and unknown period, I encourage you to look for new and unique ways to help others out, both at work and at home.  This is a great time to look for the positives, and personally try to be positive and optimistic. I look forward to the opportunity to shake your hand or even give you a hug in the near future!

Take care and be well,        

 Sarah Butler, Head of Audit & Accounting, Caseware Australia & New Zealand