The Public Oversight Board, in support of the recommendations issued by the Committee of European Boards of Auditors Oversight (CEAOB) and other regulatory members of the International Forum of Independent Regulators (IFIAR), recognizes the need to emphasize the following crucial areas in the conditions of the Covid-19 pandemic during financial statement audits.
The Covid-19 (Coronavirus) pandemic continues to spread in many countries, including Europe and the Western Balkans. This crisis, besides its health implications on individuals, also has a global impact and significantly affects economic entities and their auditors. While auditors must fully adhere to the required standards, as emphasized by CEAOB, the challenges auditors are facing due to the unprecedented scale of the pandemic outbreak may have a contrary effect on the quality of auditing.
Furthermore, the following areas are highlighted as being of high importance for the continuation of audits:
The acquisition of sufficient and appropriate audit evidence - CEAOB and National Competent Authorities (NCA) emphasize that it is the responsibility of auditors to obtain sufficient and appropriate evidence before issuing their audit report.
It is noted that limitations on access, entry, and travel, as well as the limited availability of personnel due to health concerns, may compromise the auditor's ability to obtain sufficient audit evidence. For group audits, both the engagement partner for the group and the auditor of the controlled entity should adapt their audit approach to the current circumstances. Auditors are advised to explore alternative means, including technology, to the extent possible. Achieving high-quality audits in the current circumstances may require additional time, which could impact reporting deadlines. Consequently, auditors may need to postpone the issuance of their audit report, and when this is not feasible or the issue cannot be resolved, auditors may need to modify their audit report to reflect that they were unable to obtain the necessary audit evidence.
The principle of continuity - Auditors must pay special attention to the evaluation made by the economic entity regarding its ability to continue as a going concern. In the current circumstances, uncertainty about predictions for economies worldwide and increased uncertainty regarding the outlook for many economic entities may pose a challenge to auditors' assessments. Additionally, auditors should consider the impact of their assessment on the evaluation made by management regarding the entity's ability to continue as a going concern in the audit report and in communication with governance and management. There may also be cases where an economic entity needs to apply for accounting.
Subsequent Events - For the majority of economic entities, the crisis emerged after the conclusion of their financial year. Auditors will need to assess whether the disclosures provided by the economic entity about the qualitative and quantitative impact of the COVID-19 pandemic on its activities, financial position, and future economic performance are appropriate in relation to the existing financial reporting framework, and they may need to include an emphasis-of-matter paragraph in their audit report. When this is not the case, auditors may need to modify their audit reports accordingly.
Reporting and Communication Auditors are reminded to appropriately focus on evaluating whether the description of the financial position of the economic entity, its key risks and uncertainties, and its potential future developments align with the knowledge they have gained as part of their audit work. It is crucial for auditors to communicate in a timely and appropriate manner with the management and those charged with the governance of the economic entity regarding the impact of the COVID-19 pandemic on their audit work as well as on the economic entity and its financial statements. When deemed appropriate, auditors may choose to include a key audit matter in their audit report. They are also reminded that applicable standards, such as the Audit Regulation (EU) No 537/2014 of the European Parliament and Council of 16 April 2014, or local requirements may necessitate reporting these matters to the relevant authorities or other bodies outside the economic entity.
All regulators, including members of the International Forum of Independent Regulators (IFIAR), CEAOB, and the Public Oversight Board as members of the task force for significant international developments in audit markets (IRDAM), are monitoring the implications that the spread of this pandemic may have.
The Public Oversight Board will also publish below some materials and similar practices followed or recommended by other regulators or field organizations to provide the necessary guidance in support of the implementation of professional standards.
