IAASB Guidance on Audit Implications Arising from COVID-19

Crowe Global
Audit Implications Arising from COVID 19

The International Audit & Assurance Standards Board (“IAASB”) has issued its first commentary on the audit implications arising from Covid-19. The Staff Audit Practice Alert is very clear and practical and whilst aimed at auditors, is also relevant guidance for management and audit committee members on the challenges that auditors are facing in performing a quality audit. Regular communication between auditors and management and the audit committee is essential to overcome the challenges and enable the audit to be completed.

The Alert focuses on uncertainty and unpredictability caused by Covid-19 having created risks of material misstatement that are new, or intensified, by the circumstances. When an audit was initially planned, these risks may not have been considered or the way that identified risks were considered was very different from how they would be now.

The Alert also observes that the audit environment has changed because:

  • Entities being audited are operating in a changed environment, their business may have been disrupted and evolving risks and impacts have to be disclosed;

  • Auditors have to perform their audit in different ways, encountering challenges in performing the originally planned procedures and accessing sufficient audit evidence;

  • Auditors are finding themselves using new technology applications or their existing applications in different ways;

  • There are changes in the reporting and external environment because of guidance on the application of accounting standards and regulation, and new transactions such as the receipt of government business continuity support and the deferral of liabilities.

Auditors have to be responsive to adapting their audit plans to respond to the changing environment. As the risks of material misstatement may have changed, audit procedures may need to change, including at a late stage of the engagement. The IAASB identifies other changes including:

  • Adapting the direction, supervision and review to an environment when all members of the engagement team are separate;

  • There might be a heightened risk of fraud or error because existing internal control systems may not be operating as designed, and risks might arise from weaknesses in segregation of duties or increased potential for management override; and

  • The exercise of professional scepticism is an ever-present issue for auditors, but is all the more important in an unpredictable, uncertain and disrupted environment where the risk assessment and engagement performance have changed.

The IAASB presents a graphical summary of specific matters for consideration arising from the Covid-19 situation for the following ISAs:

  • ISA 315 (Revised) Identifying and Assessing Risks of Material Misstatement;
  • ISA 300 Responding to Assessed Risks;
  • ISA 540 (Revised) Auditing Accounting Estimates;
  • ISA 560 The Auditor’s Responsibilities Relating to Subsequent Events;
  • ISA 570 (Revised) The Auditor’s Responsibilities Relating to Going Concern;
  • ISA 600 Group Audits;
  • ISA 700 / ISA 701 Forming an Opinion and Reporting on Financial Statements (including Key Audit Matters); and
  • ISA 720 (Revised) Other Information.

The graphical presentation sets out changes to the planned audit approach, areas where great focus might be required, specific considerations for subsequent events, going concern and group audits and the consequences for reporting.

The IAASB is developing further Staff Alerts that will address specific areas including the audit of accounting estimates, going concern and audit reporting.