Auditing implications of Coronavirus

(up-to-date to 10 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.

Guidance on best practice for AGMs has now been added to the Q&As published previously by BEIS , These details have been published 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 A link to the Q&As can be found 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: 

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.

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 10 June 2020