Auditing implications of Coronavirus

Auditing implications of Coronavirus

(updated 11 May 2021)

Introduction 

Over recent months, 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 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.

On 22 September IAASA published its annual Observations paper highlighting some significant topics that those charged with governance should consider when preparing their financial statements for 2020.

This paper highlights some key areas that warrant close scrutiny by those preparing, approving and auditing 2020 financial statements in the upcoming reporting season including the pervasive impact of COVID -19.

The UK oversight body and standard setter the FRC issued a Bulletin Guidance for Auditors and Matters to consider where engagements are affected by Coronavirus (Covid 19) - Updated December 2020.  The issues covered include:

• Acceptance of new engagements 
• Planned Audit Approach
• Materiality
• Communication with Those Charged with Governance 
• Audit evidence
• Compliance with laws and regulations
• Going Concern
• Group audits
• Access to Information 
• Quality Control
• Reporting 
• Subsequent Events
• Written Representations
• Professional Scepticism
• Partner Rotation

27 January 2021 The Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) have published updated guidance for companies and auditors to ensure high quality financial information continues to flow to users to support decision-making.  .

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 2020) Company Guidance (Updated May 2020) (COVID-19),on corporate governance and reporting including interim reports.   

The impact of the pandemic on the audit profession has been highlighted as one of the key issues by the FRC in Developments in Audit 2020 published 12 November 2020.

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. 

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.

Guidance on best practice for AGMs has now been added to the Q&As published previously, These have been published by BEIS to give companies and other bodies a basis on which to plan over the coming months. Any legislation is subject to the approval of Parliament.  

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.
There have been further extension and measures put in place since March 2020..

See the FCA website for more information 

In this 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. 

• 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   

• 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.

The Central Bank of Ireland is continuing 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.  They have published a number of FAQs aimed at regulated firms and their advisors. 

In a 'Dear CEO' letter sent to participating regulated firms in June 2020, the CBI set out its expectations in respect of extending payment breaks from three to six months, and to the management of the end of the payment break term. The CBI is also allowing flexibility regarding the filing of returns from the entities that they regulate, and they have clarified the application of relevant announcements made by ESMA. A full listing of the amendments are available here. They have also created a COVID-19 hub which contains information and guidance for consumers, businesses and regulated firms.
See our regulator webpage (updated 12 February 2021)

Additional guidance material

Accountancy Europe unites 51 professional organisations from 35 countries that represent 1 million qualified accountants, auditors and advisors. 

When a company collapses, all stakeholders are affected, from employees to investors, and it eventually erodes the public’s trust in financial markets. The COVID-19 crisis has further increased the pressure and made companies more vulnerable to fraud and corporate failures. This has led Accountancy Europe to issue two publications (and their summaries) with recommendations to strengthen the financial reporting ecosystem, respectively on:

• Going concern
• Fraud

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

Additional material has been analysed relating to the impact on ongoing audits.
This highlights the main matters for auditors in four categories:

• auditor’s identification and assessment of risks
• auditor’s response to assessed risks
• auditor’s report and communication
• auditor’s involvement related to government support

Coronavirus' impact on ongoing audits - Analysis of guidance for European Auditors 

ESMA 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
ESMA COVID Hub
  

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: 

1. highlights the main principles of the ESMA Guidelines on Alternative Performance Measures; 
2. encourages issuers to use caution when adjusting APMs and when including new APMs to address the impact of COVID-19; and
3. 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.

Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID-19 measures: EBA statement

UK: BEIS have published some Q&A to provide companies and their advisers with additional information upon which to plan activities over the coming months. 
Online filing and other updates to services have been developed to assist customers by Companies House. 

Ireland - see the updates from the Companies Registration Office 

International 

IFAC have developed dedicated web pages focused on audit (includes audit evidence, auditing accounting estimates, auditor reporting and subsequent events etc.)  which provide a summary of the key challenges and implications from Covid-19 and highlights various relevant resources which are available under each topic.

IFAC held a series of webinars focused on practical audit quality considerations in the pandemic environment. Each of the three webinars focused on a unique phase of the audit.  You can access these webinars here.

Using specialists in the covid-19 environment

Recent additions to the audit page (6 October 2020)

The audit page includes a publication which guidance to assist professional accountants in business and in public practice determine when there might be a need to use the services of a specialist to assist in performing specific tasks and other professional activities within their employing organizations, and in serving their clients in the COVID-19 environment. This publication also highlights relevant ethical considerations for accountants when thinking about using a specialist, as well as circumstances that indicate a need for a specialist during an audit of financial statements.

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 IAASB has also published a COVID-19 Resources Page.
This includes topic specific Staff Audit Practice Alerts

• Areas of Focus in an Evolving Audit Environment Due to the Impact of COVID-19
• Going Concern
• Subsequent Events
• Auditor Reporting
• Auditing Accounting Estimates
• Review Engagements on Interim Financial Information

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. 

Ethics challenges  as the pandemic wanes

A Working Group formed by IESBA have been meeting regularly since Q2 2020 to discuss the key issues exacerbated by Covid 19.  As the pandemic fades there are ethics considerations that will be especially pressure tested during this period of recover and the Working Group has examined these in this article. 

Guidance from professional bodies

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 for members preparing or auditing financial statements in the context of published COVID-19 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.

The ICAEW have a webpage for auditors in the current climate. 
The ICAEW Audit and Assurance Faculty have developed a Know How guide providing some considerations for auditors when assessing the risks of fraud in relation to COVID-19 government support schemes. 

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.

2020/21 Reporting Season: Q&A – common COVID-19 accounting and auditing issues.

Some of the most frequently asked accounting and auditing issues are discussed as part of the Audit and Assurance and Financial Reporting faculties' going concern event on 4 January 2021.  

The ICAEW have also prepared guidance for Auditors on including an Emphasis of Matter paragraph in Auditor reports, which can be found here.

The potential impact of coronavirus on going concern and the auditor’s report is discussed here on the ICAEW webpage.

The Institute in Scotland have a website providing guidance for members and have also published guidance on stocktakes.

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 11 May 2021