Changes under COVID-19: 1 1 ●Entity strategy, ●Organizational structure, ●Business model, etc. Examples of risks increasing the susceptibility to risks of material misstatement: ●Increased risk of fraud, ●Lack expertise to deal with the changes, ●Loss of financing, etc. Risk identification and assessment Source: Arnold, 2020 Image retrieved from https://images.app.goo.gl/B45btajgcStRQdWcA5
Auditor’s responses Ongoing communication ●Understanding the changes to the entity and environment ●Evaluating whether there are changed risks that could be material Source: Arnold, 2020 Image retrieved from https://images.app.goo.gl/6B1b7ubvgVHMaEGU9 Video conferencing 6
Going Concern risk ●Professional judgement to liquidity ●Government relief program ●Sensitivity analysis Image retrieved from https://images.app.goo.gl/99EgXEvE9x5va6yx87
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Determine Materiality COVID-19 is likely to impact how materiality determined by auditors and the choice of benchmarks used. NPBT- decrease significantly Total assets? Auditor’s Responses Plan a meetingand discuss with management: impact of COVID-19 on materiality; Conservatism (ICAEW, 2021) 8
Subsequent Events December 2019 First case reported in Wuhan, China12/31/ 2019 Date of the financial statements 1/30/ 2020 WHO declared global public health emergency3/11/ 2020 WHO declared pandemic 3/11/ 2020 Date of auditor's report & date the financial statements are issued6/30/ 2020 Date of the financial statements 12/31 Balance Date:COVID19-non-adjusting subsequent events 6/30 Balance Date:Not treat the entire pandemic as a subsequent event; but be vigilant about what other subsequent events occurred caused by pandemic as conditions and government policies shift. February, March, April, May balance dates:Pandemic was in various stages of emergence. There will be some adjusting and some non-adjusting subsequent events (CAANZ, 2020). *Relief for reporting and audit deadlines: e.g. Listed entities in ASIC can take one additional month to report for full year and half-year financial reports for 21 February 2020 to 7 July 2020 balance dates (ASIC, 2020). SE period extend----More subsequent events? 9
Audit evidence Impacts ●Inspections for physical item (eg.retailers’ inventories) ●Inspections for documents Auditors’ responses ●Adverse impacts on inspections for physical inventories ●Adverse impacts on inspections for documents Image retrieved from http://clipart-library.com/clipart/39034.htm 10
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Audit evidence Inspection of inventories for retailers ●Travel restrictions caused by COVID-19 ●Cannot obtain sufficient audit evidence on time ●The existence of inventories is inaccurate Image retrieved from https://images.app.goo.gl/aDub5V41v2SeH7gFA11
Audit evidence Inspection of documents ●Travel restrictions caused by COVID-19 ●Cannot inspectaccounting vouchers, contracts, reports etc. on-site ●Inaccuratejudgments about the authenticity and reliability of the data (Barbour, 2020) Image retrieved from https://images.app.goo.gl/fARY62RJAmfquAqk712
Auditor’s responses Physical inventories ●Observe physical inventory counts on an alternative date ●Using technologies(e.g.,live camera feed /video conferencing) (Arnold, 2020) 13
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Auditor’s responses Documents ●Make video calls or screen sharing to review the work of component auditor ●Provide a more detailed questionnaire or memorandum to the component auditor and discuss with the management ●Provide customers’ information directly to the management (Arnold, 2020) 14
Reference List Arnold, C. (2020).Summary of Covid-19 Audit Considerations. IFAC. Retrieved from https://www.ifac.org/knowledge-gateway/supporting-international-standards/discussion/summary-covid-19-audit- considerations. Australian Securities and Investment Commission (ASIC). (2021).20-113MR ASIC to further extend financial reporting deadlines for listed and unlisted entities and amends ‘no action’ position for AGMs.Retrieved from https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-113mr-asic-to-further-extend- financial-reporting-deadlines-for-listed-and-unlisted-entities-and-amends-no-action-position-for-agms/ Barbour, J. (2020).ICAS issues updated guidance for auditors on attendance at stocktakes during the coronavirus outbreak. icas.com. Retrieved from https://www.icas.com/professional-resources/coronavirus/practice/accounts- audit-and-corporate-reporting/icas-issues-updated-guidance-for-auditors-on-attendance-at-stocktakes-during-the- coronavirus-outbreak. 15
Chartered Accountants Australia and New Zealand (CAANZ). (2020).Financial reporting and audit issues stemming from COVID-19. Retrieved fromhttps://www.charteredaccountantsanz.com/- /media/96f8a8b1608247398fdbda1e74ffbe49.ashx Gould, S., & Leka, L. (2020).Reporting and fraud risk arising from covid-19 pose significant challenges for professional accountants.Retrieved fromhttps://www.ifac.org/knowledge-gateway/contributing-global- economy/discussion/reporting-and-fraud-risk-arising-covid-19-pose-significant-challenges-professional- accountants ICAEW. (2021). COVID-19: determining materiality. Retrieved from https://www.icaew.com/technical/audit-and- assurance/audit/risk-assessment-internal-control-and-response/covid19-determining-materiality. OECD. (2020).Unemployment Rates, OECD - Updated: June 2020 - OECD. Retrieved from https://www.oecd.org/newsroom/unemployment-rates-oecd-update-june-2020.htm. Reference List 16