How to Audit During a Pandemic? Your Top 5 Questions Answered

Carl R. Mayes, Jr., CPA

This year has been anything but conventional. As auditors prepare to audit clients who’ve found themselves financially affected by the pandemic, the AICPA has received many questions. To bring a little clarity in the time of COVID-19, here are answers to the most frequently asked questions. require them to be onsite, like PP&E and inventory existence.

IS IT POSSIBLE AND EFFECTIVE TO AUDIT REMOTELY?

You’re not prohibited from conducting audit procedures remotely. Auditing standards generally specify what evidence must be collected, but not how it must be collected. In most cases, we can reliably gather audit evidence remotely. Regarding inventory exisroll-forward, assuming

To audit remotely, you must have the necessary infrastructure and resources in place — licenses for videoconferencing technology, staff training, security and privacy protocols, etc.

While certain aspects of an audit, such as observing inventory counts, are may be able to go back to the client’s last cycle count and roll

harder to do without being physically present, there are a wealth of resources available for auditors to use when working remotely to assure you’re complying with the requirements of professional standards. Access the AICPA’s COVID-19: Audit & Assurance resources at wscpa.org/aicpa-audit.

HOW CAN I AUDIT PROPERTY, PLANT AND EQUIPMENT (PP&E) AND INVENTORY WHILE

While your ability to perform in-person audit work may be limited, auditors are still required to test assertions that traditionally A possible solution to confirm the existence of PP&E and inventory is livestreaming. Using video that is confirmed to be live (as opposed to pre-recorded), management can put their fixed assets on camera so you can verify their existence.

tence, livestreaming is also a valid solution if COVID-19 has made being physically present for inventory counts impracticable. Another solution is to observe the inventory count on a different date and review and test the inventory adequate controls exist over inventory.

If the client has a perpetual inventory system, you can consider relying on the client's cycle counts. These counts are often conducted quarterly and include a portion of the client's inventory on hand. If you’ve been testing those controls and relying on them to establish the existence of inventory, you WORKING REMOTELY?

forward to year end by testing sales and purchases during that interim period.

perform a physical inventory count, and alternative procedures to test inventory existence are not possible, you may face a scope limitation in your audit. While other procedures like price testing and obsolescence testing may provide indirect evidence regarding the existence of inventory, they are unlikely to provide sufficient appropriate audit evidence.

For more information on how to test inventory remotely, visit wscpa.org/site to read “How auditors can test inventory without a site visit,” a Journal of Accountancy article.

WILL EVERY BUSINESS HAVE A TRIGGERING EVENT?

Given the economic environment in 2020, many entities are likely to conclude that triggering events occurred, causing them to perform impairment testing. To evaluate whether a triggering event has occurred for a client, refer to ASC 350.

ASC 350 defines what a triggering event is and lays out the circumstances that indicate if a triggering event has occurred. ASC 360 gives you the order in which you should perform impairment testing with respect to indefinite-lived intangible assets, long-lived assets and goodwill.

FAQs regarding audit and financial reporting matters related to COVID-19 at wscpa.org/afr can help.

IF COVID-19 IS A TRIGGERING EVENT FOR MY CLIENT, WHAT DATE WILL BE USED TO DO THE EVALUATION?

March 2020 — the date the World Health Organization declared COVID-19 a global pandemic. WILL COVID-19 LEAD TO A RISE OF BUSINESSES WITH ISSUES REGARDING GOING CONCERN?

I’m hearing from practices that practitioners are anticipating an increase in the number of clients with going concern issues. And because of that, reporting is an area where auditors risk tripping up. If more clients have substantial doubt about their ability to continue as a going concern, there is likely to be an increase in the number of audit reports where an emphasis of a matter paragraph is required.

If management believes their plan alleviates substantial doubt, auditors will need to scrutinize the evaluation, carefully review any supporting materials management used to reach that conclusion and evaluate the adequacy of management’s disclosures in the financial statements before issuing an unmodified report.

There are many more reporting outcomes possible based on specific circumstances. To determine which report is required by professional standards based on the circumstances, visit wscpa.org/flowchart to access the AICPA’s auditor’s report tool (requires AICPA free or member account).

Carl R. Mayes, Jr., CPA, is AICPA Associate Director – CPA Quality & Evolution, Association of International Certified Professional Accountants. You can contact him at Carl.Mayes@aicpa-cima.com.

Originally published on the AICPA Insights blog and reprinted with permission. Illustration: © iStock/ DrAfter123