COVID - 19 impact on Audit reporting

With wide-ranging COVID- 19 travel restrictions all around for an undetermined period, the companies and their auditors are encountered with uncertainties in a number of audit areas. Difficulties are also faced by entities in meeting their reporting timelines and the same extend to auditors and their ability to complete the audit on time due to impediments presented by COVID- 19. Considering this, auditors may need to perform additional performance procedures to evaluate the appropriateness of management in assessing the impact of uncertainties in the business. 

Amid the economic turmoil, COVID- 19 is the principal consideration in the auditor's determination in assessing whether one or more Critical Audit Matter (CAM) exists and if exists, how to address those CAMs while reporting financial statements. A lot more doubts are rising till date on part of auditor in fulfilling their reporting requirement. To provide a detailed reporting framework to members in these uncertain times, guidance on Auditor's Requirements - Key Audit Considerations amid COVID- 19 has been issued. Along with explaining the management's (preparing the financial statements) and auditor's (conducting audit) responsibility, guidance provides a list of indicative factors that an auditor should consider on case to case basis. Further, the guidance is divided into three sections:-

1. Impact on Auditor's Report - This section provides the possible impact of COVID-19 on the auditor's report in different situations like:

a) Improper accounting/ inadequate disclosures; 

b) Inability to obtain sufficient and appropriate evidence; 

c) Going concern considerations, including an Emphasis of Matter Paragraph in the Auditor's Report; 

d) COVID-19 and Key Audit Matters; etc.

2. Impact on Reporting under CARO 2016 - With the deferment of application of Companies (Auditor's Report) Order, 2020 for one year, auditors should continue to comment on matters as specified in Companies (Auditor's Report) Order, 2016. This section provides an illustrative list of clauses under CARO 2016 which are expected to be impacted due to COVID- 19. The list is as follows:-

• Clause 3[ii]: Physical Verification of Inventory

• Clause 3[vii](a): Reporting on deposit of undisputed statutory dues

• Clause 3[viii]: Default in repayment of loans or borrowings to a financial institution, bank, government or dues to debenture holders, etc.

3. Impact on Reporting on Internal Financial Controls with Reference to Financial Statements - Internal control testing is considered to be an integral part of audit procedures as it determines the level of substantive procedures to be carried out by the auditor. This section of guidance provides an audit approach and a list of key factors that should be considered by the auditor while conducting the audit procedure. It also explain the different scenarios in which reporting needs to be done on internal controls.