COVID-19 - Will my audit report contain any modifications as a result of COVID-19?

The outbreak of COVID-19 is a time of great uncertainty for all and this is no different for auditors and their reports. 

For some businesses, COVID-19 will have no impact on the audit reports included within their financial statements. These may be entities that have sufficient working capital to continue to operate for the foreseeable future or they may have been fortunate enough to have seen business increase as a result of the pandemic.

However, at the other end of the spectrum, some businesses may have been so significantly affected that there are number of significant uncertainties in their financial statements. In this extreme, it may mean that the auditor is unable to give an opinion at all. In most instances however, your auditor should be discussing with you whether a “material uncertainty relating to going concern” exists. 

One of the auditor’s specific responsibilities is to consider whether the basis of preparation of the financial statements is appropriate (this is normally the going concern basis). In particular, this requires an auditor to consider whether the company can continue to operate as a going concern for at least 12 months from the date the audit report is signed.  

An auditor would do this by reviewing management forecasts and considering the assumptions that underpin them. However, as a result of COVID-19, meaningful forecasts have become much more difficult, if not impossible, to produce. As a result, your auditor may consider it necessary to include a specific paragraph in their report which draws attention to this uncertainty.

The inclusion of a material uncertainty relating to going concern paragraph or an emphasis of matter paragraph (which draws attention to specific disclosures within the financial statements that may be significant and/or material) are not considered modified audit reports and we expect that many audit reports issued during these unprecedented times, will include such paragraphs.

Bishop Fleming have elected not to adopt a blanket approach of including such a paragraph in each report we issue and instead are reviewing each audit on a case by case basis to determine what, if any, modification is needed. 
 

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