The outbreak of COVID-19 and the restrictions on the movement of people have created a number of challenges for auditors. These range from the practical, such as how to carry out a stock take to the more fundamental such as the impact on risk to an audit of the pandemic.
In March, the FRC published guidance which acknowledged the difficulties that the outbreak and its restrictions has created for auditors but re-affirmed that “the current situation should not undermine the delivery of high-quality audits”. In other words, despite the current difficulties, auditors must still undertake their work in accordance with the International Standards on Auditing.
How then to go about doing this?
Communication, coordination and cooperation
As auditors, we recognise that for many clients, having their audits completed is not top of their priority list. As such, we have to be more flexible than ever before to work together with clients so that the audit requirement aligns with their business needs and resource availability.
In some instances, this may mean that the audit is completed more gradually for example, an initial exercise to choose samples with later work to review responses provided. It might also involve completing work on certain areas of the financial statements but leaving others to a later date.
The best approach will vary on a case by case basis but it will always be vital to agree a detailed plan with the client before work commences.
Use of Technology
Whilst it remains true that some companies still rely on hard copy documents, many businesses have long embraced paperless working. Similarly, we are also able to utilise technology to carry out audit work remotely.
Bishop Fleming has been using its secure file transfer site for a couple of years and this has recently been upgraded to improve functionality and client experience. We are able to upload queries and working papers for client discussion and where specific points require additional discussion, can share screens.
We are also able to carry out analytical procedures over client data using our in-house tools which in certain cases can extract data directly from a client’s system.
How do you complete a stock take when you can’t physically count inventory? Of all the work auditors undertake, demonstrating the existence of inventory ordinarily requires the auditor to be present at a client’s site.
It may be possible to undertake the stocktake remotely using some form of video call. The efficacy of this approach depends on the nature of the stock, on the risk associated with it and ultimately the client’s willingness to participate.
When considering whether a stocktake can be done remotely, it is important to consider whether the normal work an auditor would undertake during a stock take can still be completed. This will include:
It may also be possible to attend a count later and then conduct a “roll back” to the year-end position. However, in practice this may be difficult to achieve, particularly if there is a large number of stock movements between the year end and the date of the count.
Unfortunately, the current circumstances do not remove the requirement for a year end count and as such, if sufficient comfort cannot be obtained, it will be necessary to include a limitation of scope paragraph in the audit report of the company concerned.
Bishop Fleming hasn’t actually prohibited stock take attendance by its team and in fact, several have taken place over the lockdown period. Instead we are reviewing the circumstances in each case before deciding on the best way to proceed. If a year-end count is proceeding, inventory is a material balance to the financial statements and it absolutely can’t be done remotely, we may still be able to attend the count. This is of course, on the proviso that all government guidance is followed, and the client is comfortable having a member of the team attend.
Once the audit has been completed and the financial statements are ready to be signed, a further practical point is how they can be signed and submitted to Companies House. One solution for signing the accounts is the use of our in-house portal site which allows documents to be “e-signed”.
We are also able to upload financial statements directly to Companies House rather than relying on the postal service.
A word of caution
Whilst the logistical issues outlined above may be overcome to the extent that sufficient audit evidence can be obtained, the outbreak of COVID-19 will have further implications for the recognition of balances and transactions in the financial statements. In turn, this will create additional complications in the audit process and require additional work to be carried out.
The outbreak will undoubtedly affect the risk assessments of auditors and may require auditors to spend additional time reviewing audit evidence and forming opinions and it will be no different for Bishop Fleming clients.
It is important, therefore, to take this into account when considering reporting timetables.
If you do have any concerns about how your audit is going to be undertaken, the Bishop Fleming team can assist. Please contact a member of the team below to discuss further.