The Covid-19 (Coronavirus) pandemic ravaging the world undoubtedly has a global impact on the economy leaving no business operations behind and as such affected professional practice like auditing which is an obligatory professional task to be carried out on business operations as its importance in ensuring transparency in financial dealings and tax remittance cannot be overemphasized. As other sectors of the economy are battling to stay afloat with their operations during these trying times, the long-term economic and business consequences remain unknown. In the same vein, while the numerous consequences that have led to halting in different business operations around the world because of the pandemic widespread is being battled with, the financial reporting consequence has currently been faced by professional practice like an audit of most businesses also remains a thing of major concern.
Challenges of Audit Practice during COVID-19 Pandemic
The spike in confirmed cases of the pandemic in the world is on the rise, challenges never before faced by auditors in performing audits are emerging in the audit profession/practice. However, it has proven that audit practitioners need to be more responsive and creative in performing audits with adherence to compliance of basic auditing standards. Some major challenges faced with audit practice during these critical times are further discussed below:
i. Financial statement issuance delays
ii. Fraud risk
iii. Accessing client records
iv. Changes in the financial reporting chain
v. Changes in Business Operation Subsequent Events
Financial Statement Issuance Delays
With many businesses faced with unexpected closures and demand uncertainties, completion of procedures necessary to issue historical financial statements may be a low priority. The Security exchange commission (SEC) has provided issuers conditional relief related to filing deadlines. Management and auditors of private companies may consider delaying financial statement issuance, if possible until circumstances improve. In the interim, management of private companies could choose to communicate with users by means other than issued historical financial statements (such as drafts or projections).
Access to Client Records
With the lockdown in place, it is a difficult task to access client books and records as a result of restrictions on individual movement and commencement of business operations nationwide. There are more difficulties especially in cases where clients still maintain keeping records on paper. Though Auditors may be able to obtain client-prepared copies or scans of key records, auditors need to consider the authenticity of those records and perhaps perform additional audit procedures to be satisfied that those records are complete, accurate, and authentic before acceptance and processing of such records, hence the delay in report.
Increased Fraud Risk Exposure
Auditors are most likely to be faced with the challenge of a spike in fraud records. Currently, companies are disengaging key personnel and with workforces moving out of the typical office environment, there could be a breakdown in internal control. On that note, Auditors may need to adjust audit procedures that were necessary to help reduce any potential fraud risks that could have a material effect on the financial statements.
Changes in Financial Reporting Chain
Changes in applicable financial reporting standards, changes in laws or regulations, or new transactions for the entity such as the receipt of subsidies are regarded as challenges auditors are most likely to encounter during these times.
Changes in how, and where, auditors are undertaking their work may necessitate firms to respond to the changing environment, for example by considering quality control policies and procedures relating to direction and supervision of engagement teams and the review of their work. At the engagement level, auditors should have heightened awareness of the possibility of fraud or error, including fraudulent financial reporting, with the importance of the exercise of professional skepticism top of mind in performing audit procedures.
Changes in Organization Subsequent Events
For calendar year-end 2019 financial statements, any COVID-19 related subsequent events identified likely will be events that provide evidence of conditions that arose after the date of the financial statements. However, for entities with a year-end that is later than December 2019, management could have recognized subsequent events.
Many entities with year-ends after December 2019 will have pandemic-related events that require an adjustment to the financial statements or additional disclosures. Auditors will have to work with clients to ensure any subsequent events have been accurately identified and reflected in the financial statements as required. If management is either unable or unwilling to identify those events and properly reflect them in the financial statements, this could result in a modification to the auditors’ opinion.
In view of the challenges posed by the pandemic and having understood the financial health of corporate entities during these unprecedented times, the Financial Reporting Council (FRC) of Nigeria disclosed that it is necessary that additional time may be required to document, review audit engagements due to some measures taken by government to contain the scourge of COVID-19.
FRCN upon review of the current pandemic ravaging the country classified practice of audit during these times into three major audit categories. One is the audit of 2019 Financial Statements, which have been completed, audit opinion issued and report already released to shareholders. This only affects accounting issues in first-quarter reports and onwards. The other category is the Audit of 2019 Financial Statements, which are still ongoing with respect to reporting periods ended on or before December 31, 2019 which literally means that auditors are required to consider the adequacy of disclosures included in the financial statements as companies are required to disclose the events.
The Federal reporting council however revealed that, if auditors are still not able to obtain sufficient appropriate audit evidence, then they should consider modifying the opinion on the financial statements in line with ISA.
Conclusion and Recommendations
The Covid-19 pandemic has brought about new challenges to audit practice as applicable in major organizations. It is on that note that organizations should use this crisis as an opportunity to reflect on the ability to navigate crisis and going forward, taking a keen consideration to be more resilient in the future by training their staff about the importance of staying alert to the quality of evidence and whether such evidence is appropriate to audit evidence to reduce audit risk to the lowest level.
In the same vein, practitioners should demonstrate flexibility in their work pattern which include work from home arrangements, use of video/telephone conferencing, and electronic evidence. Also, auditors are charged to apply alternative procedures if they are still not able to gather sufficient and appropriate audit evidence as a result of differing levels of infrastructure in the country. However, whatever alternative measures auditors may want to apply, they must ensure it does not in any way alter, remove or add to the requirements of financial reporting standards and that professionals are therefore still expected to exercise necessary judgements in the recognition, measurement, presentation and disclosure of information in their general purpose financial statements in the context of the current pandemic and most importantly, internal technology should be improved by investing in technology upgrades such as zero-touch models and cloud office.
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