Question

COVID-19: The impact on Audits The Corona Virus (COVID-19) is already impacting South Africa in various ways and many businesses are faced with operational difficulties. However, entities must remember that the restrictions resulting from the virus, will also impact financial reporting requirements and increase the focus on certain areas during audits. Going concern Management of an entity are required to provide the auditor with their assessment of the entity’s ability to continue as a going concern. The assessment should take into account all available information about the future and cover at least 12 months from the end of the reporting period. It may be difficult to make a meaningful Base Case economic forecast, let alone a plausible downside economic scenario. In this highly uncertain environment, going concern assessments will be more difficult for entities to make, and more companies will need to report a material uncertainty related to going concern. The objectives of the auditor are: • to obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management’s use of the going concern basis of accounting in the presentation of financial statements; and • to conclude on whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. The conclusion reached by the auditor may have a significant impact on the audit opinion.

Required:
Discuss the potential impact of Covid-19 on the possible audit opinions that can be issued by external auditors.
[25 marks]

Answer 1

The unprecedented adverse impact of very uncertain Global Pandemic of Covid 19 is unexplainable. It has disrupted entire cycle of economic system. We all as global citizen will require to take higher standard of hygienic measure until we find best vaccine for it. With best synchronization of available option in health care system we have to be prepared for coming generations. We should also try to clear our harmful deeds of past leading to most healthy life style. We have to show our commitment in making best health care system thereafter.

Impact of Covid 19 is well briefly explained in Question itself. Let us discuss best possible protocol to be followed to meet objective of external auditor.

Mandatory lockdown measures were imposed by governments to control the spread of the virus, with individuals having to work from home where possible. For auditors, this means they can no longer travel to audited entity premises, nor even to their own offices and that their audits will have to be completed remotely.

If there is a positive side to this significant challenge for auditors, it is that the audit profession was already on a journey to becoming more digital, and the investment in digital capability has allowed many firms and practitioners to adapt to the new circumstances relatively more quick than other industries.

· Objective to obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management’s use of the going concern basis of accounting in the presentation of financial statements

o Best hygienic measure until we find best vaccine for Covid 19. Doesn’t matter if it takes 2 years to 5 years.

o Use of PPE to collect evidence where site visit is unavoidable.

o Maximum use digital method for auditing.

o Best advice of financial option available to management to tackle going concern.

· Objective to conclude on whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. The conclusion reached by the auditor may have a significant impact on the audit opinion.

o Material uncertainty is surely existed related to events or conditions.

§ However, it is taken care being best practice of digital controls.

§ With best synchronization of humanity with law & order we will surely come out of this Global Pandemic of Covid 19

The uncertainty in light of Covid-19 creates challenges for management, and auditors are reminded that they should remain sceptical when assessing management’s judgements.