FRC publishes guidelines for external auditing during COVID-19 lockdown

The Financial Reporting Council (FRC) has released guidelines to assist external auditors with assessing financial statements during the COVID-19 lockdown.

The guidelines were published on the council’s website.

The council expressed concerns about the “financial health of corporate entities as usually reported in financial statements especially during this difficult period and therefore believes that additional time may be required to document, review audit engagements” due to restrictions imposed due to the COVID-19 outbreak in the country.

The FRC classified the situation into three major audit categories; for the audit of 2019 financial statements which have been completed, audit opinion issued and report already released to shareholders, it said that there would be no impact of COVID -19. Only accounting issues in first-quarter reports and onwards.

For ongoing audits of 2019 financial statements with respect to periods ended on or before December 31, 2019, auditors were asked to consider the adequacy of disclosures included in the financial statements “as companies are required to disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made” for each material category of non-adjusting events after their reporting period.

The FRC said the impact of COVID-19 outbreak is considered to be material.

For an audit of 2020 financial statements (accounting periods ending on or after January 1, 2020), the guidelines contain actions to be taken when carrying out audits during the COVID-19 crisis in the following areas: new audit engagement; audit planning, execution and reporting; assessing the impact of COVID-19; events after the reporting date; going concern; and audit of 2020 financial statements (audit and accounting issues).

“The guidance directs practitioners to demonstrate flexibility in their work pattern, which includes work from home arrangements, use of video/telephone conferencing, and electronic evidence.

“However, auditors should apply alternative procedures if they are still not able to obtain sufficient appropriate audit evidence as a result of differing levels of infrastructure in the country.

“If auditors are still not able to obtain sufficient appropriate audit evidence, then they should consider modifying the opinion on the financial statements in line with ISA.

“The audited financial statements containing the modified opinion must then be brought to the council’s attention in accordance with the provisions of the FRC Act.”

FRC said auditors may encounter scope limitations or complex auditing and accounting issues which may require audit teams to consider modifications to audit opinions due to the severity of the pandemic and its impacts on mobility, employees and economy.