Question

Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

Companies and other related persons need to consider their market activities, including the issuance or purchase of securities, in light of their obligations under the federal securities laws. For example, where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders who are aware of these matters should refrain from trading in the company’s securities until such information is disclosed to the public.

When companies disclose material information related to the impacts of COVID-19, they are reminded to take the necessary steps to avoid selective disclosures by disseminating such information broadly to the public.[4] Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.

Tell me briefly how it would affect the auditors responsibilities during the audit or during the timeframe when an audit is not happening (they are still a client). What is the exposure. What procedures if any, should the auditor propose or require be done?

Word count: 200 minimum

Answer 1

Auditor's responsibility is to express true and fair opinion on the financial statements. It also the part of the auditor's responsibility to ensure that the financial statements contains all the required disclosures. Failure to ensure complete disclosures not only will lead to professional negligence but auditors can sued by the stakeholders.

Even during the uncertain time likes COVID - 19, auditor should be in regular touch with the management of the Company. Auditor;s should inquire about the possible impact of the same in the financial reporting process of the Company. Based upon that auditor needs to ensure that proper accounting has been done in financial statements and adequate disclosures has been made in the financial statements.

Exposure to auditor can be in terms of professional negligence. However it applicable only when auditor's has issued a misleading report. During the interim time when auditors has not issued any report and management has taken advantage of the circumstances then auditors can't be held responsible.

These are the procedures that the auditors needs to perform in uncertain times such as of COVID -19

1) Inquire management about the possible effects of impairment, going concern on the company.

2) Ensure proper accounting approach has been followed by the management for accounting of impairment of receivables etc.

3) Debt covenants needs to be critically verified for possible breach.

4) Adequate EOM para needs to be disclosed in audit report based upon the effect in the financial statements.

5) Management representation letter should be taken to ensure all the information has been disclosed to the auditors of the Company.