ICAI has issued different Guidelines which prescribes key points/ questions for Auditor’s Consideration, like Physical Inventory Verification, Going Concern, Subsequent Events, Auditor’s Reporting, Financial Reporting & Auditing of Financial Statements for the Accounting Year ending 31st March 2020, for conducting audits during the COVID-19 phase, as under:
Subsequent Events: Key Audit Considerations amid COVID-19 (23 May 2020)
In complying with the applicable financial reporting framework, management exercises judgment in determining impact on the financial statements of any subsequent events related to the COVID-19 pandemic, taking into consideration the date of the financial statements, the facts and circumstances pertaining to the entity, and the conditions that existed at, or arose after, that date. As the impacts of the COVID-19 outbreak continue to evolve, including regulatory restrictions/conditions, capturing events that relate specifically to conditions that existed at the date of the financial statements, or after the date of the financial statements, will require careful assessment.
In undertaking work to be responsive to the auditor’s risk assessment pertaining to subsequent events, including reasons related to the impact of the COVID-19 pandemic, the auditor considers management’s adjustments or disclosures, including the timelines used to distinguish between adjusting and non-adjusting events. In addition, this includes the impact of the changes in the environment on the recognition and measurement of account balances and transactions in the financial statements (if adjusting), or other specific disclosures (if non-adjusting).
Auditor’s Reporting: Key Audit Considerations amid COVID-19 (dt. 17 May 2020)
While considering the auditor’s reporting in respect of the impact of COVID-19 on the financial statements of an entity, the auditor should consider whether sufficient and appropriate audit evidence is available for the auditor to be able to assess the factors set out below. These factors are indicative and not exhaustive and the auditor should always maintain professional skepticism and apply professional judgment on a case to case basis and consider other factors as applicable:
a) whether the impact on the business operations/ revenues/ cash lows etc. of the entity for the year (including fair valuations, estimates, realisability, discount rates used etc.) has been appropriately assessed by the management.
b) whether the events occurring subsequent to the year-end but before issuance of the auditor’s report, have been considered.
c) whether any adjustments are required to the financial statements; if yes, whether the same have been appropriately accounted for.
d) whether the impact on the going concern basis of accounting of the financial statements has been assessed to conclude on (a) appropriateness of the use of going concern basis of accounting, and (b) existence of material uncertainty related to going concern.
e) whether appropriate disclosures have been made in the financial statements regarding the impact and the management’s assessment of the same including the impact on going concern basis of accounting.
Physical Inventory Verification: Key Audit Considerations amid COVID-19 (13 May 2020)
The COVID-19 outbreak could create several potential challenges for management of an entity to conduct physical inventory counting and for the auditors to attend these counts. With scenarios like lockdown, travel restrictions etc. as imposed by Government of India, physical inventory counting would be challenging and in some cases it would be impracticable. Accordingly, ICAI has issued checklist containing key points/ questions for consideration of Auditors to meet the possible challenges of COVID-19.
Going Concern – Key Considerations for Auditors amid COVID-19 (10 May 2020)
Auditing and Assurance Standards Board of ICAI has issued an Auditing Guidance on the topic “Going Concern – Key Considerations for Auditors amid COVID-19” to provide guidance to the members on key areas of focus in the current environment in India, when undertaking procedures relating to, and concluding on, the appropriateness of management’s use of the going concern basis of accounting in accordance with the Standards on Auditing (SAs).
This guidance includes specific FAQs to deal with the various situations in the current environment:
a) Has management performed a preliminary assessment of the entity’s ability to continue as a going concern? Whether auditor has discussed with management the impact of the COVID-19 outbreak, if any, on their assessment?
b) Were there interruptions in the supply and production cycle of the entity due to the COVID- 19 outbreak? If so, does management have a feasible recovery plan? Do these events or conditions cast significant doubt about the entity’s ability to continue as a going concern? Are these disruptions expected to continue for a foreseeable future and the action plan of the management to mitigate these risks?
c) Did the auditor note any contradiction in audit evidence provided by the entity (e.g., different assumptions or inputs used for different purposes)?
d) Are there any financial difficulties, resulting in additional credit risks, higher than usual bad debts and potential impairments and write-offs because of the COVID-19 outbreak? Has management considered these situations in their assessment of the entity’s ability to continue as a going concern?
e) Are there any potential issues related to debt, including debt covenants, which are applicable to the entity (for example, is the entity in compliance with debt covenants or do debt agreements contain material adverse change clauses or call provisions)? Has management considered these situations in their assessment of the entity’s ability to continue as a going concern?
f) Whether the auditor considered the risk of inadequate disclosures in the financial statements related to the COVID-19 outbreak and management’s recovery plans?
ICAI’s Advisory for Audit of Financial Statements for 2019-20 amid COVID-19 (27 March 2020)
ICAI has issued an Accounting & Auditing Advisory for Members/ CA Firms for analysis and consideration of Impact of Corona Virus while conducting audit of Financial Statements/ reports for the Accounting Year 2019-20.
The advisory has been prepared for careful consideration of the impact of Corona Virus on Financial Reporting & Auditing of Financial Statements for the Accounting Year Ending 31st March 2020, in the case of:
1. Entities to whom Ind AS is applicable and
2. Entities to whom AS is applicable, viz,
a) Companies to whom Companies Accounting Standards Rules, 2006 is applicable, and
b) Non-corporate entities to whom AS issued by ICAI is applicable.
The role of auditors at times like this is under increased scrutiny as the auditors have a public interest obligation to complete the audit work in accordance with professional standards and ethics requirements. Under the current circumstances, auditors must recognise that the manner in which they conducted the audits in the past may need significant modification to address the challenges and uncertainties arising out of the impact of COVID-19. Auditors should exercise a very high degree of skepticism and be prepared to call out where the Company’s narrative that the Board presents is not specific enough and does not “tell the whole story” of the various scenarios and level of uncertainty specific to the Company’s operations. Irrespective of the challenges and uncertainties, there should not be any dilution or non-compliance with the auditing standards in carrying out the audits.