COVID-19 has ceased the flow of businesses and has caused a tremendous effect on the economy. The disruption in the business has forced people to adopt new methods and techniques to overcome this crisis. The present-day world has never experienced this kind of situation before, and it has led them to a dilemma on how to cope up with this current scenario.
The unprecedented turn of events has put much pressure on the financial department of every entity. The auditor’s risk is at its peak in such cases as proper identification and assessment are necessary. Specific new issues may occur with such drastic situations at rising, which may include:
- Liquidity, access to capital, debt covenant compliance
- Cyber security
- Changes in internal controls over financial reporting as everything is done in the virtual environment
- Asset and goodwill impairment
- Fair value estimates
- Third-party vendor considerations
- Business interruption
The Auditor’s Risk
- A breakdown in the internal control over financial reporting could occur due to the change in the work atmosphere of the personals.
- Fraudulent practices may be high at this juncture due to changing incentives or increased pressures on management. Disruption on the internal control over financial reporting due to the override of managerial controls may all cause new risks of material misstatement.
- Investigations on fraud are one of the essential duties of an auditor, as the current circumstances do not allow any in-person inquiries; on the other hand, the virtual world provides us with vast opportunities of video conferencing which enables the auditors to monitor the body languages as well.
- Revision is to be considered due to the changing environment of COVID-19. Any situation demands proper review; in the current circumstance, the consumer behavior and the retail re-opening may have rapid changes throughout the year. It requires the auditor be to at alert and have constant updates on the changing environment.
- The assessed risks may not be adequate at times which requires the auditors to modify planned audit procedures or design new procedures. An auditor should be ready to face the consequences and should have a proper plan to deal with the same.
- Here are some reminders to the auditors in modifying procedures or designing new procedures;
- To enhance the direction and supervision of less experienced team members and to modify and review the nature and extent of their work.
- To seek the assistance of senior or experienced members during complex issues.
- To increase the involvement of specialists or include others with specialized skills.
- To include engagements where other auditors are involved.
- To develop alternative approaches, especially by making use of the available technology.
- The auditors are to create and exercise a questioning mind throughout the audit and develop professional scepticism in gathering and evaluating evidence. It is also vital for the auditors to check the relevance and reliability of the audit evidence.
Auditors are required to communicate with the audit committee to ensure risks are adequately identified, assessed, and responded to.
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