Due to the COVID-19 pandemic, this year has posed significant challenges for all of us, this includes auditors and the clients they serve. As a result, auditing faces new unforeseen challenges:

Internal Control Risks

As many businesses have moved to virtual work, they have had to make changes to their internal control systems. When this occurs, the risk of a breakdown in internal controls increases. As a result, auditors will need to test internal controls after the pandemic and compare the results to pre-pandemic results, in order to obtain an understanding of said results, they also test the design and effectiveness of the business’ controls, in accordance to auditing standards. In the event that a breakdown in internal controls happens, the auditor may not be able to rely on those controls, meaning more substantive procedures will need to be performed to reduce audit risk to an acceptable level.

Heightened Fraud Risk

Due to the unexpected nature of the pandemic, the likelihood that a business could be in violation or close to violating debt or other commitments has increased. As a result, auditors are on heightened alert for the risk of fraudulent financial reporting or misappropriation of assets. Management may attempt to explain this behavior to keep the business afloat during this challenging period.

Examples of risks of fraudulent financial reporting misstatements include:

  1. Fictitious revenue
  2. Fraudulent management estimates
  • Improper timing of revenue
  1. Fraudulent federal relief program applications

Auditing Accounting Estimates

Auditing predictions are also an area of heightened risk for auditing during the pandemic. Businesses are required to make forecasts in several areas, particularly those related to revenue recognition, inventory valuation, allowance for doubtful accounts, and the impairment of long-lived assets and other intangibles. From time to time, auditors may need to enlist the assistance of a specialist to assist with these forecasts.

Potential Scope Limitations

Auditors may come across scope limitations that, depending on the circumstances, result in a delay in the issuance of an audit report or an adverse/disclaimer report. Common actions that could result in a potential scope limitation include:

  1. Inability to perform physical inventory observations
  2. Lack of access to client records
  • Understanding and testing of internal controls
  1. Inability to confirm accounts
  2. Forecasting related to going concerned
  3. Performing subsequent event procedures
  • Obtaining management representations

To learn more about how to overcome auditing challenges during this ongoing pandemic, visit us at rgbaccounting.com.

Source: accountingweb.com

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Toronto Entrepreneurs Conference @ Mississauga

May 08, 2019 Our B.E.S.T. (Business Entrepreneurs Services Team) Group has participated in this event for first time. Toronto Entrepreneurs Conference and Trade Show is the largest Entrepreneurs event in Canada. The event which targets business owners, partners or...

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September 04, 2018 RGB Accounting will participate in this event for a second year in a row. Hispanic Fiesta will be held at Mel Lastman Square in Toronto during the Labour Day Weekend, August 31st, Sept. 1, 2, & 3, 2018. Hispanic Fiesta is a four-day celebration...

Secure Your Future Seminar 2018

June 20, 2018 This event gathered business owners running a small or medium-sized business, self-employed and incorporated businesses willing to learn tax saving strategies to help them utilize their company assets to secure their retirement. We are proud of having...

2nd Latino Business Expo Show

May 19, 2018 The 2nd Latino Business Expo Show held on May 19th at Daniels Spectrum gathered a wide range of entrepreneurs and business owners avid to learn how to take their businesses to the next level. RGB Accounting participated as vendor and speaker at this...

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