Reporting Season 2020-21 to be Ripe with Trials for Auditors
From going concern to remote auditing, auditors are set to face a variety of troubles during reporting season.
Thanks to the pandemic and a handful of other reasons, such as implications brought around by Brexit, auditors are going to have their hands full during the 2020-21 reporting season. Apart from these two problems, factors such as the new guidelines for going concern and accounting estimates are going to make things harder as well.
Auditors are going to be up for a challenge thanks to the material uncertainty regarding going concern. They are bound to analyze a business’s financial data objectively and highlight all accounts of material uncertainty in their audit reports.
The problem with this predicament lies in the fact that auditors are bound by standards to highlight material uncertainty. It is advised to remain “professionally skeptical” in order to remain objective.
Going Concern: An In-depth Look
Support letters from parent companies and business owners should be received carefully since their existence doesn’t necessarily mean that material concerns can be overlooked in an audit report.
Going concern will need to be scrutinized in a highly forensic manner since it’s hard to say whether a business can continue to meet all its obligations. Instead of focusing on their assets, it is important to take a good and hard look at an Entity’s liabilities.
The ISA (UK) 570 guideline revision for going concern came into effect for all accounting periods starting on 15 December 2019 and after. The ISA (UK) 540 guideline revision for accounting estimates came into effect at the same time. Guidelines dealing with audit report drafting have been revised as well, ISA (UK) 700.
It is important for auditors to fully understand the extent to which they are capable of recognising irregularities while conducting an audit. Careful scrutiny is required from auditors in order to increase the chances of highlighting irregularities such as fraud.
In order to help auditors understand how to draft these paragraphs accurately, help sheets have been provided by Professional Bodies. And since this has remained an obligation for public interest companies, auditors can always browse through their reports for historical examples.
The revisions brought by ISA (UK) 570 are meant to increase requirements regarding going concern in order to make it easier to identify irregularities. This is largely thanks to certain high-profile cases regarding corporate fraud. Since the pandemic has already placed more importance on going concern, a lot of auditors won’t feel too much pressure because of the latest revisions.
The latest change, ISA (UK) 540 requires more thorough auditing of accounting estimates. In order to do this, auditors will have to view all presented data with greater care and challenge estimates with stricter checks.