ICAI issues Rules for Audit of Going Concern amid COVID-19
May, 21st 2020
The Institute of Chartered Accountants of India (ICAI) has issued detailed guidelines for audits to assess the going concern nature of the company and key audit considerations amid COVID-19.
Auditor reporting and transparency about the entity’s financial condition is information critical to our turbulent economy. Amid the economic turmoil related to the coronavirus pandemic, going concerned is one of the topics that auditors are most frequently asking about in their contacts with the ICAI.
The auditor would be more skeptical about impairment assessment in the current scenario. It should be noted that the auditor is not performing procedures to assess the impact of Covid-19 itself rather the procedures are being performed in respect of specific items of financial statements or assumptions,” ICAI guidelines said.
The Institute highlighted the responsibility of Auditors said, “while considering the auditor’s reporting in respect of the impact of COVID-19 on the financial statements of an entity, the auditor should consider whether sufficient and appropriate audit evidence is available for the auditor to be able to assess the factors set out below. These factors are indicative and not exhaustive and the auditor should always maintain professional skepticism and apply professional judgment on a case to case basis and consider other factors as applicable.”
ICAI also asked auditors to take into consideration industry reports, analyst reports, third party studies for the purpose of his assessment.
The guidelines not only contained auditor’s responsibility but also the management responsibility.
The institute while discussing the possible impact of COVID-19 on the auditor’s report highlighted that the auditor should modify his opinion on the financial statements in the circumstances of improper accounting or inadequate disclosures and inability to obtain sufficient appropriate audit evidence.
The institute while addressing the common question, whether the impact of COVID-19 is a key audit matter (KAM) in an audit per se said, “The impact of COVID-19 on specific areas of the financial statements needs to be evaluated for the purpose of reporting KAM. For example, physical verification of inventory using alternative audit procedures may involve more effort vis-a -vis a non-COVID-19 scenario. Similarly, the auditor would be more skeptical about impairment assessment in the current scenario.
” Auditors have to include a paragraph on the emphasis of matter (EOM) to highlight aspects ‘fundamental to users’ understanding of the financial statements” after assessing the impact of COVID-19 on the backdrop of the pandemic.
The institute also directed the auditors to give an adverse opinion, qualification, or a disclaimer in the report if disclosures are not satisfactory.
In the case wherever it is not possible to observe the inventory and balance sheet which can include engaging the internal auditor or another chartered accountant to observe stock verification on their behalf, leveraging the use of technology, ICAI has suggested an alternative audit procedure for physical verification.