Question

discuss how COVID-19 will affect your audit planning, execution and reporting:

c. Going Concern Assessment

d. Audit Opinion

Answer 1

To mitigate the effects of the Covid-19 pandemic at a time of book closures, companies would have to prepare for unexpected financial developments

COVID-19 will affect your audit planning, execution, and reporting

Going Concern Assessment

COVID-19 is a new and evolving crisis, which has been labeled a pandemic by many countries and institutions, including the World Health Organization. The full impact of COVID-19 is yet to be determined, and to date has surprised most market observers how in a short period of time, it has wreaked havoc on the global economy as populations are ordered to stay home. As a result, the business has ground to a halt in order to stop its spread. This has resulted in governments scrambling to provide stimulus packages hoping to revive their domestic economies.

Financial Reporting Framework

In accordance with ASC 205-40, in preparing financial statements for each annual and interim reporting period, management must evaluate whether there are conditions and events (e.g. COVID-19 crisis) that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or available to be issued (when applicable), collectively referred to as “issued” throughout this document.

Ongoing disclosure requirements
An entity must include disclosures related to uncertainty about its ability to continue as a going concern in the notes to the financial statements until the conditions or events giving rise to the uncertainty are resolved. As the conditions or events giving rise to the uncertainty and management’s plans to alleviate them change over time, the disclosures should change to provide users with the most current information, including information about how the uncertainty is resolved.

Audit Opinion

The new pandemic, Covid-19, has proved to be testing for humanity. Death tolls and confirmed cases have been increasing alarmingly across countries. The business fraternity is sat crossing their fingers as the disastrous consequences of Covid-19 on the economy and business rise beyond their imagination. Stock markets have hit bottom in several countries, and many governments are still contemplating the mechanisms needed to pull back the economy from the imminent slowdown. The Government of India has ordered a nationwide lockdown to curb the spread of this pandemic and has also come up with various stimulus packages for the economy.

Accounting provisions

As the Covid-19 outbreak is rapidly spreading in India, particularly at the time of book closure, how it is going to impact the accounting and audit practices is a serious concern for many. Business entities would be indulging in efforts to mitigate the impact of this catastrophe on their operations. Financial statements would also need to account for such eventualities while reporting. As accounting involves the use of judgment on the expected cash flow stream and expense of a company, uncertainty in the business environment would require revision of estimates on revenues and expenses. For instance, companies would have accounted for some percentage of their accounts receivables as bad debts.