AUDITING & COVID 19 — Important General Factors and Audit Opinions
“The signature of a Chartered Accountant is more important than the signature of the Prime Minister” — PM Modi, India
Time and again, importance of audit has been highlighted by world leaders. It is the management’s responsibility for preparation of financial statement, accounting estimates, assumptions and related disclosures. But Isn’t it being the RESPONSIBILITY OF AUDITORS TO VOUCH FOR all of these? BIG YES, it is? As the pandemic has taken a toll does it changes your responsibility anyway? Do you need to scramble down and prepare your plan from scratch? Do you need to act and audit in any different manner?
World over professional organization ISA, ICAI, ICAEW, ACRA etc. has issued various publications providing valuable insights to consider while auditing under this pandemic. We tried to collate here few important aspects which should not be missed at all while auditing under the current scenarios all over. Let’s take a quick look into how should we as an auditor re-plan, re-prepare and revive ourselves and make an impact by providing better, insightful, true and fair report to the best possible.
Auditing is gathering the financial documents, examining record keeping, reviewing the accounting system, reviewing the internal control policies, cross verifying the internal and external documents and records. COVID 19 will prone management to use the ability to use subjectivity in various aspects of the accounting like, inventory, property plant and equipment, financial instruments, trade receivables, revenue from contracts with customers, etc., each to their own. There is very slight difference between intent and the ability, however, even a slight change in the intended plan under current uncertain environment may pave a way for unrecoverable damage and misstatement in the financial statements. Hence, as per international standards auditors are asked to raise their eyebrows for every matter they audit under this current scenario. Below a quick glance through why an uncertainty requires more efficient and better robust audit procedures. Current scenario requires auditor to flung the traditional magic wand with a modern technique.
Pandemic has entrusted auditor with immense opportunity and responsibilities to come forward and contribute to the fair financial reporting. Basically, the process can be simplified to understand into 3 parts from the start of risk assessment to the end reporting. Please note these are the additional feather in the cap of the auditors along with the ongoing flow.
· Internal Factors — To Audit Firms
o As an auditing firm are you well equipped with auditing under current environment.
o Do you have necessary skills and qualifications in your team to combat/optimize on the situation and audit with highest level of independence, authority and responsibilities
o Have you walk through necessary materials / study specific to the client industry, environment in this general and under this pandemic?
o What as a team are your strengths to tap on and weaknesses to improvise on for the audit under this COVID 19?
When you will be able to chalk down responses for these basic questions, you will have with you all the basic details ready in hand to figure out -
a) What you have?
b) What you have to arrange?
· Internal Factors — To Client
o What are the changes in the client’s company due to pandemic?
o Glance on the revised SOP’s, manuals, policies? And its practical applications?
o What are the new/ added internal controls placed under current situation?
o Geographical presence of the company and COVID 19 impact in the zone?
· External Factors Overall
o Governance regulations and its periodicity
o Global environment and future outlook
o Floated incentive and its periodicity
“Your physical presence might now more turn into virtual,
Office table to home comfy sofas,
Clocking time to comfort time,
Attendance as eye catchy to value addition as a core,
Auditing as it was to auditing as it goes!”
As rightly said by Julie Bell Lindsay (Center for Audit Quality EY) — “Technology cannot replace the human elements of being an auditor. But I think you can have an exciting collaboration of technology and the auditing profession, combining the benefits of both.” These pandemic times we are in, is posing challenge and the key is to learn from these challenges and overcome through intelligence. Intelligence is the ability to understand and adapt to the change. The below are few International standards they would require auditor’s intelligence attention more than ever before to turn the wind:
📘International Standard on Auditing (ISA) 701 (New), Communicating Key Audit Matters in The Independent Auditor’s Report
📘International Standard on Auditing (ISA) 705 (Revised) Modifications to the Opinion in the Independent Auditor’s Report
📘International Standard on Auditing (ISA) 706 (Revised) Emphasis of Matter Paragraphs and Other Matter Paragraphs in The Independent Auditor’s Report
📘International Standard on Auditing (ISA) 570 (Revised)2 Establishes Requirements and Provides Guidance About Communication in The Auditor’s Report Relating to Going Concern
📘International Standard on Auditing (ISA) 560 Subsequent Events
📘International Standard on Auditing (ISA) 230 Audit Documentation
📘International Standard on Auditing (ISA) 705 (Revised) Modifications to The Opinion in The Independent Auditor’s Report
After evaluating, identifying, responding to the risk of material misstatements auditors can form opinions based on its demonstrations and conclusion.
A. Unmodified Opinion
1. Clean Opinion
📒Auditor considers that the financial statements give a true and fair view of the company affairs at the balance sheet date and of its profit or loss for the accounting period.
B. Modified Opinion
1. Qualified Opinion
📒Lack of sufficient evidence for a particular matter
📒Material misstatement in the financial statements that could impact decisions of the users of the financial statements
2. Disclaimer of Opinion
📒Lack of sufficient evidence for a particular matter and so pervasive that the auditor is unable to form a view as to whether the financial statements give a true and fair view.
3. Adverse Opinion
📒Obtained sufficient evidence, that there is a material and pervasive misstatement in the financial statements and that, because of the significance of the matter, the financial statement does not give a true and fair view.
C. Other matters
📒These include reference to material uncertainties in relation to going concern or to other specific matters in the financial statements that the auditors believe require specific emphasis (emphases of matter). These do not change the audit opinion and these sections will state specifically that the audit opinion is not modified in respect of these matters.
“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning” — Albert Einstein. As an auditor importance of questioning and reasoning to client and to self is very imperative. Importance of auditors cannot be emphasized enough than in these turbulent and testing times. It is the time for the auditors to stand to the risks, follow the standards, ensure true and fair reporting to the best of their conscience. There is no standard checklist for auditors to follow the methods, processes, assumptions, estimation they should use. Neither do there is change in the existing standards. What has changed is the volatile environment which needs to be understood in the context of financial reporting and acted upon accordingly. Moving on auditing will be more dynamic and will require its role to address to these events, situations, environment they face temporary or permanent. If you are a professional, working within industry as an auditor or otherwise, onus lies on your shoulder to adopt to the best practices and present the true and fair financial statements. Undoubtedly auditors are the torch bearers of the economy on whose rolling of dices the future pillars lies. Being agile and focusing on delivering the best thing possible in a set time period is the key to behold. At last I can only say,
“It never happened before,
Isn’t that’s the real joy of standing out and contributing!
How should I do,
Turn the table, there is always a way to do it better, find it!
What if I fail,
As long as you tried you are successful!
Again I reiterate a quote of honorable PM Modi remember your 1 signature will change the world,
How? Is up to YOU!”
Thank you👍✔
