Audit

(up-to-date to 5 June 2020) Introduction  Over recent weeks, much has been issued in terms of advice from regulators, and commentary, regarding various auditing considerations related to the spread of coronavirus.  We have assembled below some information that we have come across that may be of assistance to members. Commentary should not be taken as advice or as a comprehensive analysis of all aspects. This is a rapidly evolving situation. When reading information at the links below, due care should be taken of the date of issue and any developments in the interim that may not be reflected in the material published, such as updated statements from regulators etc. There is a need to be cognisant of the relevant Auditing Standards (IAASA and FRC) as well as the accounting framework being applied by an entity (e.g. FRS 102, IFRS etc.), and the jurisdiction, in considering the relevance of any of the information below. This webpage will be periodically amended as further clarification is provided and additional queries are received. Guidance from regulators A number of regulatory bodies have issued guidance. Auditors and their clients should monitor the relevant websites for up to date information. IAASA IAASA has created a Covid hub on its website. The hub includes statements and publications from various regulatory bodies in the context of Covid-19. It also includes a statement from IAASA on the challenges for audit arising from Covid-19.  The IAASA Covid hub can be accessed here. UK - Financial reporting Council (FRC) The UK oversight body and standard setter the FRC has issued a Bulletin Guidance for Auditors and Matters to consider where engagements are affected by Coronavirus (Covid 19).  The issues covered include Acceptance of new engagements Materiality Audit evidence Compliance with laws and regulations Going Concern Group audits Reporting Previously the FRC issued guidance (16 March 2020) and this covered: risk assessments;  how the auditor gathers sufficient, appropriate audit evidence; matters relevant to Group audits; going concern, disclosures and the need to reassess key aspects of the audit planning.  The FRC have also issued advice for companies and auditors on disclosure of risks and other reporting consequences arising from the emergence and spread of COVID-19 (18 February 2020) and guidance for companies on Corporate Governance and Reporting Further guidance on modified auditors’ opinions and reports during Covid 19 crisis. Issued 21 April The FRC has issued guidance (14 May) on corporate governance and reporting including interim reports.  Read the full guidance here: Company Guidance (Updated May 2020) (COVID-19) Podcasts from the FRC  Mark Babington, the FRC's Acting Executive Director of Regulatory Standards discusses new guidance issued by the FRC to assist auditors during the coronavirus pandemic. You can download or listen to the podcast here.  Jen Sisson, the FRC's Deputy Director of Investor and Stakeholder Engagement, speaks with Will Boyack to discuss how the FRC's engagement is influencing its guidance for companies, investors and auditors during the Covid-19 pandemic.  AGMs and audit reports are among the auditing issues discussed on this short podcast which you can download or listen to the podcast here. UK - The Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) have announced a series of actions to ensure that information continues to flow to investors and to support the continued functioning of the UK’s capital markets including permission for a delay in the publication of audited annual financial reports for listed companies from 4 to 6 months from the end of the financial year. The FCA has now (22 April) extended the submission deadlines for certain regulatory returns. The extension applies for submissions that are due up to and including 30 June 2020. They had previously requested that all listed companies observe a moratorium on the publication of preliminary financial statements for at least two weeks. EU- The Committee of European Auditing Oversight Bodies In a recent paper CEAOB emphasises the areas of high importance on audits of financial statements with particular emphasis on the following areas that are of high importance for the performance of ongoing audits:   Obtaining Sufficient appropriate audit evidence Going concern Subsequent events Reporting and Communication  Relevant Auditing Standards The auditing standards listed below are of particular relevance in the current situation.  Ireland ISA (Ireland) 570 Going Concern (Revised October 2019) ISA (Ireland) 501 Audit Evidence – Specific Considerations for Selected Items ISA (Ireland) 560 Subsequent Events ISA (Ireland) 600 Special Considerations – Audits of Group Financial Statements (including the Work of Component Auditors) All Irish auditing standards are available on the IAASA website    UK  ISA (UK) 570 (Revised September 2019) Going Concern ISA (UK) 501 Audit Evidence – Specific Considerations for Selected Items ISA (UK) 560 Subsequent Events ISA (UK) 600 Special Considerations – Audits of Group Financial Statements (including the Work of Component Auditors) All UK auditing standards are available on CHARIOT and on the FRC website COVID-19 - Regulated Firms Updates - The Central Bank of Ireland (Last updated on 21 April 2020) The Central Bank of Ireland has intensified its engagement across the financial services system to ensure that firms are taking the necessary actions to be able to continue to serve their customers through the unprecedented challenges COVID-19 is causing and will continue to review its approach to regulatory flexibility throughout the duration of the COVID-19 pandemic and may provide further updates as required. Additional Guidance material   Accountancy Europe  unites 51 professional organisations from 35 countries that represent 1 million qualified accountants, auditors and advisors.  Analysis of guidance for European auditors This publication focuses on how COVID 19 impacts businesses and the people that audit them. It aims to support European auditors in adapting their work to new circumstances in ongoing audits with 2019 year-ends and beyond. It highlights the following main matters for auditors to consider: obtaining audit evidence auditor’s assessment of going concern auditor’s reporting Most of the matters in this publication apply also to audits with closing dates after 2019 an additional overview with main matters for consideration specifically for audits with 2020 closing dates is being developed. European Securities and Markets Authority (ESMA) ESMA, the EU’s securities markets regulator, has issued a Public Statement on some accounting implications of the economic support and relief measures adopted by EU Member States in response to the COVID-19 outbreak ESMA statement ESMA Guidelines on APM   Alternative Performance Measures ESMA issued Guidelines on Alternative Performance Measures (Guidelines on APMs) aimed at promoting the usefulness and transparency of APMs included in prospectuses and/or regulated information. ESMA have now (17 April) published some Q&A to help users in the context of COVID-19.   The Q&A:  highlights the main principles of the ESMA Guidelines on Alternative Performance Measures;  encourages issuers to use caution when adjusting APMs and when including new APMs to address the impact of COVID-19; and  recommends issuers provide narrative information regarding the modifications made, the assumptions used and the impact of COVID-19 in APMs used.  The Q&A document may be accessed here. On 20 May the FRC updated this guidance for companies on corporate reporting to explain how they should report exceptional items and alternative performance measures (APMs) in their reports and accounts, in the context of the Covid-19 crisis. Investors expect to see balanced, transparent and clearly explained disclosures of material items arising from the crisis. A link to the guidance can be viewed here.  European Banking Authority Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID19 measures EBA statement UK Company Filings, AGMs and other general meetings.  BEIS have published some Q&A to provide companies and their advisers with additional information upon which to plan activities over the coming months.  International  International Auditing and Assurance Standards Board (IAASB ) - Guidance for auditors during the coronavirus pandemic  IAASB has issued a guidance for auditors highlighting areas of focus in an evolving audit environment due to the impact of covid-19.  The guidance lists the relevant International Standards for Auditing (ISAs) and specific matters for each of these which auditors have to consider in the context of the pandemic.  On 22 May the IAASB released -Staff Audit Practice Alert with COVID-19 Pandemic related guidance for auditors to consider when issuing an auditor’s report on the completion of the audit of financial statements. This highlights the potential implications for auditor and interim review reports arising from the current environments including: Auditor’s opinion Material uncertainty KAM and EOM paragraphs Interim reviews The document can be found HERE. Guidance on auditor considerations relating to GOING CONCERN in light of changing environment due to the COVID-19 pandemic On April 29, IAASB issued their official guidance on auditor considerations relating to going concern in light of changing environment due to the COVID-19 pandemic. Click HERE to read more. The International Ethics Standards Board for Accountant (IESBA) A Questions and Answers (Q&A) publication was developed by the staff of the IESBA to highlight aspects of the International Code of Ethics for Professional Accountants (including International Independence Standards) that might be relevant in navigating ethics and independence challenges and risks as a result of the COVID-19 pandemic. The Q&A can be read here Guidance from professional bodies:   Chartered Accountants Ireland Practice Consulting have published guidance for auditors on attendance at stocktakes by auditors of small and medium sized entities.  We have also published a series of auditing FAQs which provide examples to prompt evaluation and challenge.    The Institute Advocacy and Voice Team’s article ‘Going Concern considerations published COVID19 2020’ (23 April 2020), may assist members that are preparing and auditing financial statements and serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective. ICAEW The ICAEW have a dedicated audit webpage for the current crisis.   The ICAEW have produced a guide dealing with the particular issues facing group audits, it is designed for UK group auditors with component auditors based in jurisdictions impacted by Coronavirus (COVID-19). It offers practical considerations in relation to the work of component auditors to address the requirements in ISAs (UK). It may also be relevant for group auditors in other jurisdictions with similar requirements. The ICAEW Audit and Assurance Faculty have produced a two part guide for auditors, covering COVID-19 considerations for auditing going concern, and how to report when a material uncertainty relating to going concern exists. The potential impact of coronavirus on going concern and the auditor’s report is discussed here on the ICAEW webpage. ICAS The institute in Scotland have a website providing guidance for members and have also published guidance on stocktakes UK Pensions For UK pensions: ICAS and ICAEW have prepared an article ‘Relevant accounts for section 179 valuations due by 31 March 2020’ (30 March 2020) to assist both pension trustees and auditors to meet their responsibilities. Updated 5 June 2020    

May 27, 2020
Audit

ICAS and ICAEW have today jointly published free-to-access guidance for owners and directors of SMEs to assess the prospects of their business in the wake of COVID-19. The guidance has been written by experts at ICAS and ICAEW to aid the many small and medium-sized businesses that have been affected by the coronavirus crisis as they prepare their accounts. Company directors are required each year to assess whether the business is a going concern when drawing up their annual accounts, and this should cover at least the 12 months from the date the accounts are to be approved by the directors. But coronavirus has had a dramatic change on the performance and prospects of many businesses, leaving some under threat, and accounts will have to reflect its impact. The publication explains to business owners and directors the importance of forecasting cash flow and how to reflect the impact of COVID-19. Additionally, it provides suggestions on how to work with auditors and accountants during the pandemic, including the need to provide evidence which shows that conclusions reached regarding going concern are reasonable. The guide is available here.

May 19, 2020
Governance, Risk and Legal

Many companies are facing unprecedented uncertainty about their immediate prospects in an environment which may challenge or disrupt their usual management and governance processes. The FRC have issued guidance highlighting some key areas of focus for boards in maintaining strong corporate governance and provide high-level guidance on some of the most pervasive issues when preparing annual report and other corporate reporting including Interim Reports. Interim reports Directors will need to exercise judgment about the nature and extent of the procedures that they apply to assess the going concern assumption at the half‐yearly date.  This might include disclosures of: any material uncertainties to going concern; assumptions made about the future path of COVID-19 and the public health responses; the projected impact on business activities; use of government support measures; and access to bank and other financing.  It is a matter for a company to decide whether to engage their auditors to perform an interim review engagement– it is not a legal or regulatory requirement.  However, feedback the FRC has received from investors indicates that such a review provides valuable assurance, and this may be particularly so in the current environment.   Read the full guidance here.    

May 14, 2020
Audit

Analysis of guidance for European auditor published by Accountancy Europe Measures taken to contain the coronavirus affect us all. This publication focuses on how this impacts businesses and the people that audit them. It aims to support European auditors in adapting their work to new circumstances in ongoing audits with 2019 year-ends and beyond. The factsheet highlights the following main matters for auditors to consider: ·obtaining audit evidence auditor’s assessment of going concern auditor’s reporting For more updates see Accountancy Europe’s Coronavirus resources for European accountants. Most of the matters in this publication apply also to audits with closing dates after 2019 and there is an additional overview with main matters for consideration specifically for audits with 2020 closing dates in development. Download the factsheet here

May 01, 2020
Audit

The  IAASB iave issued their official guidance on auditor considerations relating to going concern in light of changing environment due to the COVID-19 pandemic. During the COVID-19 pandemic, audits should continue to comply with the required standards, which may necessitate different and enhanced considerations by auditors in the current circumstances. Auditors may need to consider developing alternative procedures to gather sufficient appropriate audit evidence to support their audit opinion, or to modify the audit opinion. Resources have been assembled by the IAASB staff to help their stakeholders, and the larger accounting community, navigate some of the challenges ahead.  You can access these resources here.  

May 01, 2020
Audit

The FRC's Acting Executive Director of Regulatory Standards Mark Babington spoke with Will Boyack to discuss new guidance issued by the FRC to assist auditors during the coronavirus pandemic.

Apr 27, 2020
Financial Reporting

The COVID-19 pandemic is having a significant impact on a large number of businesses.  In this period, going concern considerations are likely to be more topical for both preparers and auditors. The Advocacy and Voice Team in the Institute has produced an article ‘Going Concern considerations for members preparing or auditing financial statements in the context of COVID-19’ (23 April 2020) to assist members involved in preparing and auditing financial statements, and to serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective.

Apr 24, 2020
Audit

The Technology Working Group (TWG) of the International Auditing and Assurance Standards Board (IAASB) has released non-authoritative support material related to the auditor’s documentation when using automated tools and techniques (ATT), such as data analytics, robotics automation processes or artificial intelligence applications.  The publication intends to assist auditors in understanding how the use of ATT during an audit engagement may affect the auditor’s documentation in accordance with International Standard on Auditing (ISA) 230, Audit Documentation, and the documentation requirements of other relevant ISAs. The publication does not constitute an authoritative pronouncement of the IAASB, nor does it amend, extend or override International Standard on Quality Control (ISQC) 1 or the ISAs, the texts of which alone are authoritative. Reading the publication is not a substitute for reading ISQC 1 or the ISAs Click here to access the publication. 

Apr 24, 2020
Audit

The Financial Conduct Authority in the UK has extended the submission deadlines for certain regulatory returns. The extension applies for submissions that are due up to and including 30 June 2020. You are still expected to submit your return as soon as possible and should you miss a deadline (in the period up to 30 June), the FCA will send a reminder letter to you. Click here for more details.  

Apr 23, 2020
Financial Services

The Central Bank of Ireland has intensified its engagement across the financial services system to ensure that firms are taking the necessary actions to be able to continue to serve their customers through the unprecedented challenges COVID-19 is causing and will continue to review its approach to regulatory flexibility throughout the duration of the COVID-19 pandemic and may provide further updates as required. During this period, the Central Bank expects firms to continue to meet their regulatory and statutory obligations on an ongoing basis. However, the Central Bank recognises that regulated firms are under significant organisational stress and that some limited and time-bound regulatory flexibility may allow firms to better serve consumers, investors and the wider economy. The Central Bank is providing regulated firms with a level of flexibility in relation to: Extending remittance dates for a number of reports with reporting dates between March and end May 2020, with exception Allowing individual firms to engage directly with their supervisor where they have COVID-19 related difficulties in meeting specific risk mitigation programme (RMP) submission dates. Firms should review the relevant section for details of applicable extensions and postponements, as well as details of the Central Bank’s application of relevant announcements made by the European Supervisory Authorities: Credit institutions Extension to Regulatory Returns Remittance Dates In line with the recommendation in the EBA Statement on supervisory reporting and Pillar 3 disclosures in light of Covid-19, the Central Bank is extending remittance dates for a number of reports with reporting dates between March and end May 2020 https://www.centralbank.ie/regulation/covid19-flexibility-measures/credit-institutions Credit unions Central Bank is providing credit unions with a level of flexibility in certain areas as outlined here https://www.centralbank.ie/docs/default-source/regulation/industry-market-sectors/credit-unions/reporting-requirements/covid19-circular-regulatory-flexibility-rcu.pdf?sfvrsn=4 Insurers and reinsurers Acknowledging the immediate challenge posed by reporting and disclosure deadlines, the Central Bank wrote to all (re)insurance firms and Special Purpose Reinsurance Vehicles on 24 March 2020, applying a degree of supervisory flexibility in relation to certain reporting and disclosure deadlines. Given the nature of the industry the flexibility measures set out in these letters will be kept under review. Securities markets, investment management, investment firms and fund service providers. The Central Bank is allowing flexibility in respect of the remittance dates of a number of regulatory returns due from investment firms, fund service providers and investment funds over the COVID-19 period.See here for more information. For more details see here.

Apr 21, 2020
Audit

Covid 19 is causing an unprecedented shock to the global business world.  As well as the business risks, companies and their auditors are facing many practical difficulties in preparing financial statements and conducting audits.  There is a great deal of uncertainty as to how the Covid-19 situation will continue to evolve.  We aim to provide links to relevant up to date advice and guidance and we will monitor developments continually and will update and add material over the coming months.  With input from members in practice dealing with these challenges daily we have developed a number of Frequently Asked Questions on auditing matters that are of particular relevance in the current climate and we will add further information and additional topics as they arise.   Published 30 March 2020  

Mar 31, 2020
Audit

Practice Consulting writes With the impact of the COVID-19 pandemic, an urgent issue facing auditors of entities with March year-ends, and thereafter, is attendance at stocktakes. Non-attendance may result in the inability to obtain sufficient appropriate audit evidence, which may impact upon the audit opinion in the current and subsequent years. The purpose of this article is to provide guidance regarding stocktake attendance for audits of small and medium-sized entities with financial years ending on or after 31 March 2020 in the circumstances of the COVID-19 pandemic.  The measures announced by the UK government and devolved administrations on 23 March 2020 and the recommendations of the Irish government to combat COVID-19 mean that travelling to and from work is only permitted or recommended where this is absolutely necessary and where the work cannot be done from home. Obviously, this has major implications for many businesses and their auditors. Reference to an International Standards on Auditing (ISA) below should be read as referring to the equivalent ISA (UK) or ISA (Ireland) as appropriate. Requirements of ISAs for attendance at stocktake The requirements for attendance at stocktakes are set out in ISA 501 Audit Evidence - Specific Considerations for Selected Items. If inventory is material to the financial statements, ISA 501 requires the auditor to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory, including “attendance at physical inventory counting, unless impracticable”. If stock is counted at a date other than the date of the financial statements, in addition to attendance at the stocktake, the auditor is required to perform audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are properly recorded. If the auditor is unable to attend physical inventory counting due to unforeseen circumstances, the auditor shall make or observe some physical counts on an alternative date, and perform audit procedures on intervening transactions. If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory. If it is not possible to do so, the auditor shall modify the opinion in the auditor's report in accordance with ISA 705. Circumstances where attendance at the stocktake may not be practicable There are two main scenarios where it may be impracticable to attend the stocktake – The entity does not conduct a stock take at the year-end; or The entity conducts a stock take and the auditor considers whether it is practicable to attend. You should firstly contact the business to see whether management intends to conduct a stocktake and establish what plans are in place.  The entity does not conduct a stock take at the year-end Since the start of the measures to combat COVID-19, a year-end stocktake may not be carried out by many businesses - The business may be required to be closed, and thus a stocktake may be unfeasible. In this case, you should gain an understanding of the reasons, consider whether you agree, and document why the stocktake is not being held, together with details of any alternative plans that are to be put in place. Alternatively, the business may not be required to close, but decides not to conduct a stocktake for reasons of employee welfare. You should carefully evaluate the reasonableness of management’s rationale for not performing the count and whether you agree, and document why the stocktake is not being held, together with details of any alternative plans that are to be put in place.   However, if you conclude that management’s explanations do not appear to be reasonable in the circumstances, then you should consider whether you need to request management to perform a stocktake. If they refuse, you should consider how this will impact upon your audit, including the risk assessment, including the risk of fraud, and your ability to obtain sufficient appropriate audit evidence.You should also consider whether there may be a requirement to report to any regulator or third party. Note that it may be possible for the entity to conduct (and the auditor to attend) a stocktake if restrictions are lifted and the entity re-opens before completion of the audit.  Stock movement may have been largely frozen during the closure or it may be possible to perform procedures which roll back the stock to the year-end. You should discuss this possibility with the entity, to ensure that you receive sufficient notice of the stocktake to allow you to attend. If this happens, please note the requirements of paragraph 5 of ISA 501 to perform audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are properly recorded. This would include appropriate cut-off tests. The entity conducts a stock take and the auditor considers whether it is practicable to attend Generally, when stock is material and a stocktake is held, the auditor attends the stocktake, unless it is impracticable to do so.  In some circumstances, the auditor may conclude that it is practicable to attend, even in the current climate, but making sure to take into account that health and safety considerations are paramount. You may also consider taking the opportunity to carry out other audit procedures that need to be carried out at the premises, such as physical verification of fixed assets, bearing in mind that it may be difficult to subsequently gain physical access before the end of the audit. In other circumstances, you may conclude that attendance is not practicable, especially of this consideration is due to health and safety issues. The application material to ISA 501 states that “In some cases, attendance at physical inventory counting may be impracticable. This may be due to factors such as the nature and location of the inventory, for example, where inventory is held in a location that may pose threats to the safety of the auditor. The matter of general inconvenience to the auditor, however, is not sufficient to support a decision by the auditor that attendance is impracticable.” It further states that “the matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative or to be satisfied with audit evidence that is less than persuasive”. It may be the case that you consider that restrictions on travel or staff safety make it impractical to attend, or indeed you may be prohibited from attending. In particular, it may be that certain members of your staff are in vulnerable categories and should not be asked to attend. You should carefully consider the facts and circumstances when assessing whether it is impracticable to attend the stocktake. If this is the case, you should document your reasons in your audit working papers.  In some circumstances, it may be possible to observe the stocktake using remote technology, such live video-streaming and/or the use of drones or similar technology.  This, along with other aspects of the issue around attendance at stocktakes in the current COVID-19 climate, is discussed in an Institute for Chartered Accountants of Scotland (ICAS) paper available at https://www.icas.com/professional-resources/coronavirus/icas-updates/icas-issues-guidance-for-auditors-on-attendance-at-stocktakes-during-the-coronavirus-outbreak. The limitations and risks attendant on using technology in place of actual attendance should be carefully considered. Alternative procedures If a stocktake was not attended, then ISA 501 requires you to perform alternative procedures to obtain sufficient appropriate audit evidence.  The application material to ISA 501 suggests as an example that “inspection of documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory counting, may provide sufficient appropriate audit evidence about the existence and condition of inventory”. Other alternative procedures may be available.  In other cases, however, it may not be possible to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by performing alternative audit procedures. In such cases, ISA 705 (Revised June 2016) Modifications to the Opinion in the Independent Auditor's Report requires the auditor to modify the opinion in the auditor's report as a result of the scope limitation. Implications for the audit opinion At the end of the audit, you will need to consider the impact of non-attendance at the stocktake on your auditor’s report, in particular whether you have obtained sufficient appropriate audit evidence.  If you conclude that you have not, a qualified opinion or disclaimer of opinion may be appropriate. Please refer to ISA (UK) 705 (Revised June 2016) Modifications to the Opinion in the Independent Auditor's Report. This standard addresses the implications of limitations on the scope of the audit.  In the circumstances described above, a limitation on the scope of the audit may arise from circumstances beyond the control of the entity (such as when you conclude that a stocktake is not feasible, or that it is not practicable for you to attend) and limitations imposed by management (such as when a stocktake does not take place and you disagree with management’s decision not to conduct a count, or to prevent you from attending). This matter may also interact with other audit issues, such as other scope limitations and uncertainties, such as going concern, which may further impact the auditor’s report.

Mar 27, 2020