Question

According to ISA 520, analytical procedure means “the evaluation of financial information through
the analysis of plausible relationships among both financial and non-financial data. It includes the
investigation of identified fluctuations, or relationships that are inconsistent with other relevant
information, or that differ from expected values by significant amount”. Corona virus or the COVID19 pandemic has affected most, if not all, of the business industries not only in Oman but all
over the world. This is due to the imposed “lockdown” of areas affected by the pandemic to not
spread the disease and worsen the situation. One of the industries that are considered affected by this
pandemic is the Banking Industry. Based on the news, countries have been asking businesses to
help in the crisis. This includes asking banks to stop imposing penalties for non-payment of their
customers’ loans since people have stopped going to work and lost earning money due to the
pandemic. Also, because employees are getting sick or afraid to contract the virus, only few are able
to report to work. Assume that you are a member of an audit team assigned to analyze the effects of
the corona virus (COVID19) pandemic on businesses. Answer the following questions related to this
business sector: Banking Industry (example Bank Muscat)
Required: Answer the following questions on analytical procedures:
1. In your opinion, will this business sector be favorably or unfavorably affected by the COVID19
pandemic? Explain your answer focusing on the financial impact.
2. How could the auditor analyze the financial impact to the industry given? Give at least two
suitable examples of analysis that you can use to analyze the impact of the pandemic to a specific
business belonging to the banking industry, like the Bank Muscat.

Answer 1

1. IMPACT ON BANKING SECTOR DUE TO COVID19

Due to covid-19 not only banks , finanacial institutions but also whole economy disturb all over the world but we have to accept this pandemic and take advantage and also sort out problem with limited resources with subsidies from the government and also reforms from the banking sector , in the bank non- performing asset ratio spike by 1.9% and credit cost ratio also , spike by 130 basis point in 2020 due to covid-19 economic slow down and non-performing assets (NPA) varies from country to country compare to china 2% with credit loss increase by 100 basis point .

Due to thsi pandemic, bank also gives relaxation to its customer in paying EMI's and major announcement by the supreme court upon Covid-19 to ensure the safest posible environment for safest to the stakeholders.

The finanacing condition also faces problem not by the bank but also investor becomes more risk aware ,this would directly effect bank credit , as per the report USD 300 billion spike in lenders , credit cost and a USD 600 billion increase in NPAs.

2.FINANACIAL IMPACT TO THE INDUSTRY

As per the words analysis 72% respondent shows that it is worse situation for the industry that not only had impact on one country but it covers the whole world and it is a situation of 'high to very high' levels of impact on the business

These are the following reason to be observed on the banking sector due to covid-19

- global oil demand has been hit hard due to this pandemic

- factory shut down which shows slowing down of the flow of product

- banking sector face with the problem of lost revenue

- the overall demand of oil fall by 435,000 barrels year on year in the first quarter of 2020

- due to this there is totally disruption to commerce industry and directly impact upon banking sector

- the oil prices also slow down below $50 per barrel for the first time in trend

- this will totally disturb not only banking sector but also the whole country

- due to this muscat securities market (MSM) have knocked last week due to decline in the financial market around the world

- travel and tourism also affected and totally impact upon the banking sector