6 Key Audit Areas to save the world!

From Banks to Mainstreet vendors, Financial statements users have placed their trust in auditors to ensure the integrity of the financial details they use to make decisions. The role of the auditor in protecting capital markets has never been more critical when we analyze the impact of COVID-19.

But just as businesses are struggling to access appropriate resources and manage remote workers, auditors face difficulties many of them have never faced. Where are we going to start? Since various audits are already underway for the period ended Dec/Mar 31, there are six areas to be addressed in the conduct of the 2019-20 audits.

• Remote Performance of Audit Procedures

Most auditors see it as a new idea to do "fieldwork" from their home office. Some also wondered whether professional standards require audit work to be carried out away from the customer's site.

Although the guidelines specify the facts required by the auditor, they generally do not determine how these criteria are to be met. Make sure that you have a proper technological infrastructure in place and that your employees have been properly trained in remote auditing. If your client has records or documents and maintains access to the files concerned, then draw up a plan to deal with the validity of the documents to be checked or copied (e.g. directly by verifying them with a third party). Always ensure to validate management assertions.

• Going Concern

The COVID-19 pandemic has weakened the financial situation of many organizations. The ability of the entity to continue as a going concern can be called into question for client groups in certain industries ( e.g. restaurants, hospitality) and in certain geographic areas.

First, it determines whether there are events or circumstances (e.g. pandemic) that raise significant doubts as to whether the organization will continue to be a going concern. The willingness of the company to survive as a business often needs to be assessed by management. Then ask for this assessment to see if it is complete and accurate. Unless otherwise stated in the financial reporting system, the forward-looking period shall be one year from the date of issue or availability of the financial statements.

In the management 's view, "substantial doubt" indicates that the client is unlikely to continue as a going concern. If there are serious doubts, disclosure is required in the notes to the financial statement, irrespective of whether the management plans of any doubts.

After deciding whether there is substantial doubt, consider management plans to reduce the doubt. The auditor's report will then be analyzed as follows:

> When the resolutions proposed by management are enough to reduce or remove the substantial doubt, an unmodified opinion can be drawn up.

> If the going concern basis of accounting is appropriate but substantial doubt remains, an emphasis-of-matter paragraph is required.

> If the going concern basis of accounting is not appropriate, an adverse opinion should be issued.

• Emphasis of Matter

Even if the ability of any company to continue as a going company is not in any significant doubt, the auditor may still conclude that an emphasis-of-matter paragraph is appropriate. It would be the case if an exceptionally large impact or subsequent event were reported in the financial statements and the auditor felt that attention had to be paid to the matter by the customer. The auditors must understand the circumstances of the individual customer and exercise their professional judgment in order to determine whether COVID-19 fulfills this concept.

• Scope Limitations

As auditors work with clients throughout the pandemic, there may be real limits of scope. For example, documentation that is a key source of evidence can not be returned, alternative procedures can not be considered sufficient or the design and execution of appropriate customer inspections can not be assessed.

The auditors should focus on whether they are material and pervasive in assessing the impact of the scope limitation. The results of 'pervasive' are those which, in the opinion of the auditor, meet one or more of the following requirements:

> Not limited to specific elements, accounts or items of financial statements.

> If they are confined, represent or could represent a substantial proportion of the financial statements.

> With regard to disclosures are fundamental to the users' understanding of the financial statements.

Limited scope, which is important but not pervasive of the financial statements, leads to qualified opinion, while scope limitations that are both material and pervasive result in a disclaimer of opinion.

• Subsequent Events

COVID-19 events are likely to be events of a type, 'events that provide evidence of conditions that arose after the date of the financial statements', in connection with the audits of the financial statements for the year 2019-20. It involves a decline in the fair value of assets/investments.

Since these activities are not included in the financial statements, it may be appropriate to report them. The auditors may assess the suitability of disclosures of subsequent events in the financial statements, and the auditor's modified opinion may be reasonable if a disclosure is not made.

Pandemic events may require adjustments to financial statements or additional disclosures, such as events that provide evidence of conditions that existed at the date of the financial statements, for client audits with year-ends in 2020.

• Risk and Uncertainties

Management shall disclose any risks and uncertainties likely to have a significant impact (1) on the amounts reported in its short-term financial statements and (2) on the short-term operations of the entity. The nature of operations, significant assessments or current vulnerabilities due to certain concentrations may be attributable to risks and uncertainties.

Many entities will be asked to disclose the risks and uncertainties of COVID-19, as the pandemic may have significant impacts on estimates and concentrations that are exacerbated. Examples include market and geographic concentrations in the COVID-19 area and concentration of business volumes with a single customer, supplier, etc. The auditors should, therefore, assess the suitability of the disclosures.

Contact for more technical resources and discussion at caanurag44@gmail.com.