Analyzing the Impacts of COVID-19 on Audit Procedures and Practices

This report, prepared for Lorem Ipsum LLC, analyzes the impacts of the COVID-19 pandemic on auditing practices and procedures. It covers key areas such as determining materiality, ethical considerations, risk assessment, audit evidence gathering, and the handling of subsequent events. The report highlights changes in entity strategies, organizational structures, and business models due to the pandemic, and discusses increased risks of fraud, lack of expertise, and financial instability. It provides insights into auditors' responses, including ongoing communication, understanding of changes, and evaluating altered risks. The report also addresses going concern risks, the impact on materiality, and the implications for audit evidence, including inspections of physical inventories and documents. It offers practical solutions for auditors to adapt to the challenges of the pandemic, such as using technology for remote inspections and communication. References to relevant guidelines and publications from IFAC, ICAEW, CAANZ, and ASIC are included. This report serves as a valuable resource for auditors navigating the complexities of auditing during the COVID-19 era.

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Impacts of COVID-19 on audit
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Contents
1
2
Risk Assessment
3
Audit Evidence
4
Determine
Materiality
5
Subsequent Events
Ethical Problem
2

Source: Labour Force Statistics 3

Ethical Problems
● Professional behaviour
● Integrity
(Gould & Leka, 2020)))
Image retrieved from https://www.sobelleducation.org.uk/wp-content/uploads/2020/03/ethics.jpg 4

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/B45btajgcStRQdWcA 5

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/99EgXEvE9x5va6yx8 7

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 meeting and discuss with management: impact of
COVID-19 on materiality;
Conservatism
(ICAEW, 2021)
8

Subsequent Events
December
2019
First case reported in
Wuhan, China 12/31/
2019
Date of the financial
statements
1/30/
2020
WHO declared global
public health emergency 3/11/
2020
WHO declared pandemic
3/11/
2020
Date of auditor's report &
date the financial
statements are issued 6/30/
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
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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/aDub5V41v2SeH7gFA 11

Audit evidence
Inspection of documents
● Travel restrictions caused by COVID-19
● Cannot inspect accounting vouchers, contracts,
reports etc. on-site
● Inaccurate judgments about the authenticity and reliability of the data
(Barbour, 2020)
Image retrieved from https://images.app.goo.gl/fARY62RJAmfquAqk7 12

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

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)
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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.
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Chartered Accountants Australia and New Zealand (CAANZ). (2020). Financial reporting and audit issues stemming
from COVID-19. Retrieved from https://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 from https://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
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