February 25th 2020 / BY: Wisteria

Coronavirus and its impact on audits

So how does this coronavirus impact a financial audit? There are number of touch points which are outlined below:

1) Operating in China – If your company operates in China or relies upon staff visiting China then the Coronavirus is likely to slow down operations or at least make things more difficult. As such you may want to report on this, if material.

2) Risk register – You may want to consider if the coronavirus outbreak is deemed to be a material risk that you wish to note in your risk register. As a reminder, it is recommended for companies to maintain a risk register and to review this regularly.

3) Report risk – You may want to consider if the coronavirus risk and its impact is one that you wish to report on in the directors’ report.

4) Timing – if you have material or substantial operations or subsidiaries in China then you may be forced to consider a new timetable to file your group accounts. China, by law requires that Chinese companies are audited within China and with the restriction on movement around China is becoming a logistical problem for those Chinese companies that require an audit. It is believed that these travel restrictions may stay in place for several more months and therefore this will have a knock-on impact on groups being able to finalise its group financial statements. At present the FRC (Financial reporting Council) are simply saying that companies need to consider how else Chinese companies can be audited.

5) Qualification – if Chinese subsidiaries cannot be audited then the group auditor will need to consider whether they qualify their audit report.

6) Audit firm obligations – auditors are required to identify clients that may be impacted by coronavirus, with a view that they should plan their work accordingly.

7) Going concern review – the impact of coronavirus is having a negative impact on market economies and on individual company performance. Auditors should review forecasts carefully to ensure that the possible impact of coronavirus has been factored into the assumptions and forecast-equation.

8) FRC concession – The FRC are discussing the options of extending deadlines.