Key Audit Considerations amid COVID-19
The uncertainty and challenges caused by the COVID-19 pandemic, including the
likelihood of unplanned events occurring at any time, the uncertain duration of this
current environment and extension of timelines for filing financial statements
impact many areas of audit. Under the current scenario, entities are required to
carefully evaluate the information that becomes available after the date of the
financial statements but before the issuance of the financial statements. Auditors are also required to have greater focus on events occurring between the date of the financial statements and the date of the auditor’s report (i.e., subsequent events) and the effect, if any, of such on the entity’s financial statements (Please refer Appendix for relevant Definitions and De scriptions of Terms used in this document).
On March 27, 2020, ICAI has issued an “Accounting and Auditing Advisory – Impact of Coronavirus on Financial Reporting and the Auditors Consideration” (Website link: https://resource.cdn.icai.org/58829icai47941.pdf). The aforesaid Advisory
provides following guidance in respect of subsequent events:
“The following needs to be considered by the management in the preparation of
According to Ind AS 10, “Events after the Reporting Period”, events occurring after the
reporting period are categorised into two viz. (i) Adjusting events i.e. those require
adjustments to the amounts recognised in its financial statements for the reporting
period and (ii) Non-adjusting events i.e. those do not require adjustments to the
amounts recognised in its financial statements for the reporting period. In certain cases, Management judgement may be required to categorise the events into one of the above categories.
Similarly, in accordance with AS 4, “Contingencies and Events Occurring After the Balance Sheet Date”, adjustments to assets and liabilities are required to be made for
events occurring after the balance sheet date that provide additional information
materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. However, adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date, if such events do not
relate to conditions existing at the balance sheet date. Disclosure should be made in
the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial
position of the enterprise.
Entities must disclose significant recognition and measurement uncertainties that might have been created by the outbreak of the COVID-19 in measuring various assets and liabilities. They should also disclose how they have dealt with the impact of
COVID-19 on the financial position and financial performance of the entity.
The responsibilities of the auditor for the subsequent events i.e. events between
the date of financial statements and the date of auditor’s report as per SA 560
are as follows:
Events Occurring Between the Date of the Financial Statements and the Date of the
6 The auditor shall perform audit procedures designed to obtain sufficient
appropriate audit evidence that all events occurring between the date of the
financial statements and the date of the auditor’s report that require adjustment
of, or disclosure in, the financial statements have been identified. The auditor is not, however, expected to perform additional audit procedures on matters to which previously applied audit procedures have provided satisfactory conclusions. (Ref: Para. A6)
7 The auditor shall perform the procedures required by paragraph 6 so that they cover the period from the date of the financial statements to the date of the
auditor’s report, or as near as practicable thereto. The auditor shall take into
account the auditor’s risk assessment in determining the nature and extent of such
audit procedures, which shall include the following: (Ref: Para. A7-A8)
a) Obtaining an understanding of any procedures management has established
to ensure that subsequent events are identified.
b) Inquiring of management and, where appropriate, those charged with
governance as to whether any subsequent events have occurred which might
affect the financial statements. (Ref: Para. A9)
c) Reading minutes, if any, of the meetings, of the entity’s owners, management
and those charged with governance, that have been held after the date of the
financial statements and inquiring about matters discussed at any such
meetings for which minutes are not yet available. (Ref: Para. A10)
d) Reading the entity’s latest subsequent interim financial statements, if any.
8 When, as a result of the procedures performed as required by paragraphs 6 and 7, the auditor identifies events that require adjustment of, or disclosure in, the
financial statements, the auditor shall determine whether each such event is
appropriately reflected in those financial statements.”