{"id":375,"date":"2020-10-12T06:25:29","date_gmt":"2020-10-12T06:25:29","guid":{"rendered":"https:\/\/www.akgvg.com\/blog\/?p=375"},"modified":"2022-08-08T07:52:21","modified_gmt":"2022-08-08T07:52:21","slug":"impact-of-covid-19-on-audit-of-financial-statements-and-audit-report","status":"publish","type":"post","link":"https:\/\/www.akgvg.com\/blog\/impact-of-covid-19-on-audit-of-financial-statements-and-audit-report\/","title":{"rendered":"Impact of Covid 19 on Audit of Financial Statements and Audit Report"},"content":{"rendered":"\r\n<p><strong>Effects on auditing financial statements<\/strong><\/p>\r\n\r\n\r\n\r\n<p>Standard on Auditing are required to be complied in full even in the present time of pressure under changed timelines. Auditors should carefully assess the situation and prepare appropriate responses to the challenges that Coronavirus causes for companies and their reporting.<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-942\" src=\"https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-1024x683.jpg\" alt=\"Audit of Financial Statements \" width=\"1024\" height=\"683\" srcset=\"https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-1024x683.jpg 1024w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-300x200.jpg 300w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-768x512.jpg 768w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-1536x1024.jpg 1536w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2020\/12\/Impact-of-Covid-19-on-Audit-of-Financial-Statements-and-Audit-Report-2048x1365.jpg 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\r\n\r\n\r\n\r\n<p><strong>Impact of coronavirus on risk assessment of a company<\/strong><\/p>\r\n\r\n\r\n\r\n<p>As per SA 315: \u201c<em>Identifying and assessing the risks of material misstatement\u201d, <\/em>an auditor is required to assess risk of material misstatement. Post pandemic the auditor is required to look in if the risk assessment is required to be reassessed. As the current situation is very challenging, it poses many new significant risks like company\u2019s liquidity so the auditor is required to constantly reconsider the impact. Further guidance can be found in SA 315.<\/p>\r\n\r\n\r\n\r\n<p><strong>Obtaining audit evidence<\/strong><\/p>\r\n\r\n\r\n\r\n<p>In the present scenario where companies are working from home and physical meetings are not held, the auditor should encourage use of technology, both client and staff for hosting virtual meetings and sharing data. Auditors should consider how to gather sufficient and <a href=\"https:\/\/www.akgvg.com\/audit-assurance-services\">appropriate audit evidence<\/a>. For this, auditors may need to shed the traditional approach and develop alternative procedures to obtain audit evidences.<\/p>\r\n\r\n\r\n\r\n<p>SA 500\u00a0\u201c<em>Audit Evidence<\/em>\u201d provides further guidance.<\/p>\r\n\r\n\r\n\r\n<p><strong>Impact on Assessing Going Concern<\/strong><\/p>\r\n\r\n\r\n\r\n<p>The foremost challenge arises due to coronavirus is the uncertainty about the economy. This poses great threat to the ability of the company to continue as going concern. Hereby now correct assessment of going concern as per \u201c<em>SA 570 <\/em>\u00a0<em>Going Concern\u201d<\/em>\u00a0is very important.<\/p>\r\n\r\n\r\n\r\n<p>For example, management\u2019s assessment of going concern may need to include:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>Preparing updated forecasts taking into account the new threats and possible outcomes.<\/li>\r\n<li>Changing management\u2019s plans for future actions<\/li>\r\n<li>Expanding disclosures<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p><strong>The impact of the company\u2019s future prospects on the auditor\u2019s report:<\/strong><\/p>\r\n\r\n\r\n\r\n<p>The auditor should ascertain the problems faced by management in preparing future projections, taking into account the high level of uncertain situations. Because, such projections could change significantly in a short span of time. It isimportant for the auditor to use professional judgement and scepticism. Refer SA 560\u00a0\u201c<em>Subsequent events\u201d\u00a0<\/em>for further guidance.<\/p>\r\n\r\n\r\n\r\n<p><strong>Other Areas<\/strong><\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>Calculating impairment losses on (plant &amp; machinery, investments, goodwill from acquisitions,intangible assets as the future cash inflow from assets may have changed significantly<\/li>\r\n<li>Valuation of inventory as the realisable value of their inventory may have reduced significantly<\/li>\r\n<li>Booking of provision of doubtful debts as per expected credit loss.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p><strong>Consider the adequacy of management\u2019s disclosures about coronavirus\u2019 impact<\/strong><\/p>\r\n\r\n\r\n\r\n<p>The auditor is required to ensure that management\u2019s appropriately discloses the company\u2019s future prospects and impact on its stakeholders. Auditors need to also consider their responsibilities in relation to other information presented by management with the financial statements. This is covered in SA 720: \u201c<em>The auditor\u2019s responsibilities related to other information\u201d<\/em>.<\/p>\r\n\r\n\r\n\r\n<p><strong>Impact on the auditor\u2019s report<\/strong><\/p>\r\n\r\n\r\n\r\n<p>The potential implications for the auditor\u2019s report may include:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>A Key Audit Matter (KAM) para may be required to be reported related to additional audit work needed because of the <a href=\"https:\/\/www.akgvg.com\/covid\">coronavirus outbreak<\/a>. For example, to describe the approach for group audit, explain there is no material uncertainty or no going concern uncertainty.<\/li>\r\n<li>An \u2018emphasis of matter\u2019 paragraph, for example to highlight a significant subsequent event disclosed in the financial statements, or a significant uncertainty arising from the outbreak.<\/li>\r\n<li>A material uncertainty in relation to a going concern paragraph.<\/li>\r\n<li>A qualification, or adverse opinion, for example in respect of inadequate disclosures, or going concern uncertainties, in the financial statements.<\/li>\r\n<li>A qualified opinion, or a disclaimer of opinion, because of scope limitation when unable to obtain sufficient appropriate audit evidence. For instance, when stocktakes could not be attended in person.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p><strong>This content is meant for information only and should not be considered as an advice or legal\u00a0 opinion, or otherwise.\u00a0<\/strong><a href=\"https:\/\/www.akgvg.com\/\"><strong>AKGVG &amp; Associates\u00a0<\/strong><\/a><strong>does not intend to advertise its services through this.<\/strong><u><\/u><\/p>\r\n\r\n\r\n\r\n<p>Posted by:<\/p>\r\n\r\n\r\n\r\n<p>CA Aman Aggarwal<\/p>\r\n\r\n\r\n\r\n<p>AKGVG &amp; Associates<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Effects on auditing financial statements Standard on Auditing are required to be complied in full even in the present time of pressure under changed timelines. Auditors should carefully assess the situation and prepare appropriate responses to the challenges that Coronavirus causes for companies and their reporting. Impact of coronavirus on risk assessment of a company&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[56,218,217,219],"class_list":["post-375","post","type-post","status-publish","format-standard","hentry","category-audit-services","tag-audit-firms-in-delhi","tag-audit-report","tag-financial-statements","tag-risk-management"],"_links":{"self":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/375","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/comments?post=375"}],"version-history":[{"count":5,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/375\/revisions"}],"predecessor-version":[{"id":3179,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/375\/revisions\/3179"}],"wp:attachment":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media?parent=375"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/categories?post=375"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/tags?post=375"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}