Question

First reported to the World Health Organisation as an unknown virus in late December 2019,
coronavirus/COVID19 developments throughout 2020 are causing great uncertainty for the global
economy. This uncertainty is creating risks that entities may not have encountered before, and gives
rise to new and rapidly changing conditions that auditors may not have previously encountered.

What impediments do travel restrictions present to the performance of the audit?(300 words)

And what COVID19 considerations would management take into account when determining
whether its business is still a going concern?(200 words)

Answer 1

1. Under such testing circumstances, the ability of reporting entities and auditors to communicate in a proactive and effective manner with each other is being put to the test. Close coordination among audit engagement teams, specialists and clients is as key as ever.

Auditors should be communicating with their clients to understand the challenges brought about by COVID-19 including impacts on financials including going concern, areas of the financials that are not impacted, effects on the entity’s ability to report externally on its financial, and related disclosures planned by the entity.

Audit committees should be communicating with their auditors to understand whether and what impediments are present to the performance of the audit such as, difficulties in accessing premises to perform procedures and inability to obtain access to components due to travel restrictions, and how the auditor plans to address these including what alternative audit procedures are planned and any impact on the audit opinion.

COVID-19 will continue to test the ability of reporting entities, auditors and regulators to remain nimble in face of the evolving challenges to ensure external reporting obligations are discharged, and that shareholders and investors’ interests continue to be safeguarded.

2. Section 134(5) of the Companies Act, 2013 requires board of directors of every company to state in its Directors’ Responsibility Statement that they have prepared the annual accounts on a going concern basis.

Given the economic uncertainty created by the novel coronavirus (COVID-19) coupled with significant business disruptions for entities across almost all sectors, there is likely to be an increase in events and circumstances which may cast significant doubt on an entity’s ability to continue as a going concern. Therefore, management may need to assess whether going concern assumption is still appropriate as a basis for the preparation of the company’s financial statements.

Recently, the International Accounting and Auditing Standards Board (IAASB) and the Institute of Chartered Accountants of India (ICAI) have issued guidance on going concern assessment amid COVID-19 by management and considerations for an auditor while evaluating the management’s assessment.