||Impact of Covid-19 on Reporting
Entities and Auditors
With wide-ranging COVID-19 travel restrictions in place for an undetermined period, auditors are encountering unanticipated barriers to obtaining the information needed to perform audit procedures and form conclusions when audited entities have operations in affected jurisdictions, or if there are financial reporting-related functions located therein.
Such audited entities’ financials and, potentially, their ability to report on their financials externally may be affected.
Depending on the manner, and extent to which, audited entities are impacted by COVID-19, planned audit procedures may no longer be capable of providing the anticipated audit evidence thus requiring auditors to make modifications to their audit approaches.
An example may be a significant decline in response rates for bank and debtor confirmations. Auditors may also find that they need to perform additional procedures to evaluate the appropriateness of management’s assessment of the entity’s ability to continue as a going concern and any asset impairment resulting from the direct impact of COVID-19 or the indirect impact of uncertainty in the business and wider economic environments.
Regulatory response to Covid-19 and reporting relief
Regulators and authorities across the Asia-Pacific have recognised that listed entities may face difficulties in meeting their reporting timelines due to impediments presented by COVID-19, and that the same extends to auditors and the ability for audits to be completed on time.
Regulators have therefore provided relief to reporting entities and auditors, largely in the form of extensions of reporting deadlines or providing reporting entities and auditors with the ability to apply for time extensions.
Figure: A snapshot of regulatory response to COVID-19 in Asia Pacific and major jurisdictions globally.
|Hong Kong SAR
||Securities and Futures Commission (SFC) and the Hong Kong Exchange (HKEX) announced that companies which are unable to publish preliminary results on time should inform the HKEX including travel restrictions and their impact on reporting, the financial information that can still be reported on, and whether the accuracy, completeness and presentation of the financial information have been adversely impacted.
||Financial Services Agency announced it will allow companies to delay submitting mandatory reports if they cannot meet the deadlines. Tokyo Stock Exchange announced plans to allow affected companies to postpone the announcement of their yearly and quarterly earnings reports. Companies will be asked to disclose potential impacts to their business.
||The People’s Bank of China, the Ministry of Finance, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange announced that issuers with difficulty in meeting their 2019 annual report and 2020 Q1 reporting deadlines can apply to stock exchanges for extensions. CSRC indicated that audit firms that experience difficulties in completing the audit on time may also apply for extensions.
||Singapore Stock Exchange announced that affected companies can apply for an extension of two months to convene their Annual General Meetings for approval of their audited FY Dec 2019 financial results.
||Securities & Futures Committee announced that it will consider applications from companies and auditors for extensions to reporting deadlines. On approval, an additional 45 days will be granted.
||Financial Supervisory Commission and Stock Exchange announced that affected companies are permitted to apply for filing extensions. Extensions will be granted on a case by case basis.
||Securities and Exchange Commission announced it will allow affected listed companies to apply for filing extensions. Extensions will be granted on a case by case basis.
||The UK Financial Reporting Council published guidance for companies on disclosure of risks and other reporting consequences. It is also discussing with auditors impacts on their ability to review component audits in China and the consequences to delivering timely audit opinions.
||Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) issued a joint statement addressing impacts on issuers’ disclosures and indicating that relief may be made available on a case-by-case or broader basis ascircumstances merit.
Communaiction between the auditor and the reporting entity put to test
Under such testing circumstances, the ability of reporting entities and auditors to communicate in a proactive and effective manner with each other is being put to the test. Close coordination among audit engagement teams, specialists and clients is as key as ever.
Auditors should be communicating with their clients to understand the challenges brought about by COVID-19 including impacts on financials including going concern, areas of the financials that are not impacted, effects on the entity’s ability to report externally on its financial, and related disclosures planned by the entity.
Audit committees should be communicating with their auditors to understand whether and what impediments are present to the performance of the audit such as, difficulties in accessing premises to perform procedures and inability to obtain access to components due to travel restrictions, and how the auditor plans to address these including what alternative audit procedures are planned and any impact on the audit opinion.
COVID-19 will continue to test the ability of reporting entities, auditors and regulators to remain nimble in face of the evolving challenges to ensure external reporting obligations are discharged, and that shareholders and investors’ interests continue to be safeguarded.
InTheBlack.com Article: Impact of Covid-19on Reporting Entities and Auditors
Published: 13th March 2020