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Covid-19 is causing a shock to the global economy that is proving sharp and large, resulting in Central Bank and government fiscal activity to support business. There is a widespread view that the economic consequences will be temporary but the return to “normality” will take time and may not be completed until a vaccine is widely available in twelve months or more. The shock has inevitable consequences for reporting and auditing.
This article is the first in a series of articles, and supporting recorded presentations, that will comment on the various professional issues that arise and draw readers’ attention to commentaries issued by authoritative sources such as oversight bodies and standard setters as well by Crowe Global member firms.
This first article highlights commentaries issued as the pandemic begun to seriously impact upon the economies of Europe and North America.
The US SEC and PCAOB have issued a joint statement covering issues including the effects of the coronavirus on financial reporting and the audit firm’s audit quality. The joint statement contains material that is relevant to all reporting environments including disclosures in management commentaries about the current or potential impact of the coronavirus, as well as a discussion about the accounting implications. It is important that companies and their auditors are open to the implications of the virus when performing the subsequent events review. Crowe LLP presents an overview of the joint statement in an article Coronavirus: Governance, Operational, Financial Reporting, and Tax Considerations.
The UK FRC has prepared guidance on both the disclosure of risks relating to the coronavirus by companies as well as on audit issues. The FRC comments on the practical challenges that some companies and their auditors are facing in preparing the reports and performing the audit. They are concerned that audit quality is not undermined by these challenges and audit firms have to develop alternative audit procedures to gather sufficient, appropriate audit evidence. Effective communication between auditor, audit committee and executive management is essential to deliver both a quality annual report and a quality audit, with all parties open to applying innovative approaches to working. One of the issues raised by the FRC concerns access by the group auditor to other auditors that report on the material components of the business. The lack of flights, travel restrictions and safety considerations are changing the way that auditors interact with each other. This issue is explored in greater detail by AGS-12 Group Audits – Inaccessibility of Components Auditors’ Work Papers and Other Considerations issued by the Institute of Singapore Chartered Accountants. This guidance is relevant to companies as well as their auditors.
These sources highlight the importance of disclosure and transparency, and effective collaboration and communication between the parties that share the common interest of delivering a corporate report that includes an audit report that results from a quality audit. Reliable information is critical for stakeholders at this time and can play its part in restoring confidence to markets.