COVID 19 pandemic has caused a great deal of uncertainty in the global trade & economy. This has resulted in impact in the financial market as well. The uncertainty arises primarily due to interruption in the production, disruption of supply chain, closure of office facilities, unavailability of personnel and communication between them.
Due to restrictions caused by the COVID 19 pandemic and the related lockdown, several restrictions are faced by the auditors in terms of visiting the client location, meeting with the client, obtaining of audit evidence (through observation and discussion). However, to comply with the quality of audit as prescribed in the Auditing Standards, the auditors must carefully evaluate unique circumstances prevailing in their audit and assess the risk accordingly. Learn more about IFRS and IndAS here
Areas which requires special attention and documentation are listed below:
![Audit documentation requirement under COVID 19 Audit documentation requirement under COVID 19](/img/preview/custom/auditapr.jpg)
Auditing Standard |
Documentation requirement under COVID 19 |
SA 315 - Identifying and Assessing the Risks of Material Misstatement |
Implication of COVID 19 on the operational disruption resulting in the change in the business model, reduced customer base, disruption in supply chain, contractual non-compliance, liquidity and working capital issue |
SA 260 Communication with TCWG |
Whether the impact of the COVID-19 |
The auditor will only be able to form a conclusion relating to going concern once management has made its own assessment |
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Inventory valuation at a date other than the date of financial statement i.e. 31.03.2020. The physical verification of inventory may be conducted at a date other than the date of financial statement. |
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Alternate audit procedure - Subsequent sale of specific inventory acquired or purchased prior to physical verification |
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SA 560 - The Responsibilities of the auditor for the subsequent events i.e. |
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified. |
SA 570 (Revised) Going Concern |
Operational disruption is critically important for the going concern assessment. Auditors will need to |
It is the responsibility of management to make the assessment as to whether the entity is a going concern |
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Management should consider the impact of COVID-19 on customers, suppliers and employees. |
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The auditor will only be able to form a conclusion relating to going concern once management has made its own assessment |
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If the entity is disclosing in their subsequent events disclosures that an estimate of impact cannot be made due to the evolving situation, this may result in a |
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SA 580 Written Representation |
Auditors need to assess whether any specific representations may be required to be obtained |
Reporting standards |
Since in the current scenario there are high probabilities of going concern being |
SA 701 – Communicating Key Audit Matters in Independent Auditor's Report |
The auditor should evaluate whether the impact of the disruption caused because of COVID-19 to the operations of the entity, consequential impact on |
SA 720 (Revised) The Auditor's responsibility relating to other information |
Additional disclosure due to COVID 19: |
SA 240 - Fraud Assessment |
The impact of COVID-19 on businesses could be very significant and could put pressures on management to meet performance targets or market expectations. This raises the risk of the likelihood of fraud in the financial statements to a higher level which requires the auditor to exercise a much higher degree of skepticism |
Some illustrative situations where the Auditor may need to express modified opinion due to COVID 19
- The auditor is unable to obtain sufficient appropriate audit evidence relating to the material component audited by the other auditor as per SA 600 due to COVID-19 pandemic.
- The financial impact arising out of the COVID-19 outbreak are not accounted or reported or disclosed as per the prescribed Accounting Standards, in the financial statements
- The auditor has communicated misstatements to the management and those charged with governance relating to COVID-19 as per SA 450, Evaluation of Misstatements Identified during the Audit and the management or TCWG refuses to correct such misstatements, that are individually or in aggregate, material to the financial statements. Update your existing knowledge about IFRS and IndAS here
Source: Impact of Corona Virus on Financial Reporting and Auditors Consideration issued by ICAI Accounting & Auditing Advisory