COVID-19 EXPERT LEGAL INSIGHTS

COVID-19 economic chaos – how can audit deadlines still be met?

23 March 2020

We are living in unprecedented times.  Boris Johnson’s announcements each day, whilst aimed at slowing the growth of the global pandemic which is COVID-19 (Coronavirus), will undoubtedly have a drastic effect on businesses in all sectors.


The world must go on, but how? Vast swathes of the work force (those who can) are working from home. Technology is stepping in to assist with the change in working patterns, but it is not infallible.  There is huge pressure on parents, often trying to do two full time jobs whilst looking after small children.  With schools closed, there is also the pressure to home-educate children, whilst trying to insulate them from the stress and fear that many adults are experiencing.

Audit firms carrying out statutory audits, with strict timescales, are one of the types of businesses which will feel the effects of this pandemic quite strongly. There are huge restrictions on travel, with the inevitable consequence that client sites are simply inaccessible. There is also the human factor of a workforce which may be reduced in productivity, on both the client’s and auditor’s side, due to the factors I have described. This is on the background of many firms facing an uncertain future, due to the decline in demand and the changing market conditions. In such circumstances, audits become even more important.  

The Financial Reporting Council (FRC) acknowledged in a press release on 16 March 2020 that auditors will find the situation extremely challenging.  However, it indicated that, “the current situation should not undermine the delivery of high-quality audits…”and that, “Audits should continue to comply fully with required standards.”  It explained that additional time should be taken, when required, even if that comes with the risk of delaying company reporting.   It set out a number of factors which should be focussed upon, given the likely impact of COVID-19, including:

  • the auditor’s risk assessment, and whether any revision to it is necessary;
  • how the auditor gathers sufficient audit evidence;
  • how group auditors’ work can be assessed against standards, especially when travel is restricted;
  • the assessment of going concern, given the likely downturn in the economy;
  • the adequacy of disclosures made by management on the impact on the company of COVID-19; and
  • the need for the auditor to assess the dynamic nature of the COVID-19 situation, and how evidence of a change in circumstances may be required up until the point of signing the auditor’s report. 

Questions were then raised as to how companies could meet strict filing deadlines. On 19 March 2020, Companies House advised that a company could apply for an extension to its filing deadline if COVID-19 had adversely affected its ability to file its accounts in time.  An extension must be applied for before the filing deadline, and should be accompanied by any documents which would support the application.

In the event that an audit simply cannot be completed on time, due to human elements, travel or technology, the Government has at least relaxed its rules to ensure that auditors can make alternative arrangements to ensure that its audits are carried out appropriately, professional scepticism is applied and company accounts are accurate and complete.

From the perspective of audited companies, the pressure on their finance functions in the coming weeks and months will be significant. The focus may naturally shift onto the frequent provision of financial information and forecasts, as companies face new pressures every day.  Whilst there is a degree of latitude for companies and auditors in finalising and submitting accounts, the message from the FRC is clear:  although there are huge other pressures, don’t forget your statutory responsibilities.

About the author

Julie Matheson is a Partner in the Regulatory team, specialising in defending professionals in the financial and legal fields.  She has particular expertise in defending accountants and accountancy firms in regulatory proceedings brought by the FRC, ICAEW and ACCA.  She also regularly provides advice on FCA conduct issues, particularly under the Senior Managers and Certification Schemes.

 

 

 

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