COVID-19 has not only had a significant impact on businesses, it has also had an impact on the conduct of statutory and CASS audits.
As well as having a financial impact, COVID-19 has also had an operational impact on firms as a consequence of working from home and furloughing of staff.
1. Working from home and furloughing of staff
Auditors will be concerned that these actions might have made controls less effective and increased the risk of fraud and error, as well as increasing the risk of non-compliance with the FCA rules and regulations, including money laundering and CASS.
For example, internal auditors may not have been carrying out their normal work resulting in expected checks on operations not being carried out or the furloughing of staff has reduced the ability to carry out certain controls. Also, there will be an impact on computer security and GDPR compliance as a result of working from home that will need to be fully considered.
Special care will be required when carrying out the annual compliance reviews to ensure that the effect of COVID-19 on controls is fully considered and any resulting weaknesses identified are fully discussed by management and mitigated.
2. Reliance on controls – revised operating models to deal with the pandemic could have an impact on the audit process because of the increased risk and inability to place reliance on controls. In addition, the audit itself may need to be carried out remotely and the auditors will require remote access to accounting records and documentation, which may require changes to systems
3. The effect of COVID-19 on the ability to continue to comply with capital adequacy requirements will also be vital and auditors will need to make judgements about the firm’s ability to remain a going concern for at least 12 months after the approval of the financial statements and audit report. In order to reach a conclusion, auditors will be looking for answers to the following:
How has the business been impacted by COVID-19 to date, and how might it be impacted in the future?
Does the nature of the business give rise to additional risks?
Will the business be able to access government support?
What timelines for restrictions are factored into forecasts?
How liquid is the business and what future finance does it have access to?
How solvent is the business likely to be over the longer term?
How have management stress tested their projections?
4. Finally, disclosures in financial statements should be sufficient to enable a user to understand the impact of COVID-19 on the business and its future viability including, where relevant:
Specific short and medium-term COVID-19-related factors that have been considered;
Details of how the board is monitoring and controlling the situation;
Government Support obtained
Elements of uncertainty resulting from COVID-19 and how they have impacted the business
Details on business model resilience and actions with reference to the situations highlighted by COVID-19; and
Details of how COVID-19 has been reflected in scenarios and stress-testing of both prospects and viability
If you would like to talk through these and other auditing issues, please do get in touch.