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The impact of Covid-19 is already having a significant impact across the audit profession and public practice leaders finds research from ACCA Covid-19 global survey: inside business, impacts and responses.
The pandemic has specific implications for auditing firms, with the nature of the audit process needing engagement and direct interaction with the audited entity.
Although digital advances continue to influence how audits are conducted and how evidence is gathered, as well as aspects of the reporting process, for many firms the crisis is creating a systemic shock to normal client engagement activities.
Mike Suffield, director – professional insights at ACCA says: ‘From increased pressure to complete audit work to issues in getting audit evidence, and very sensitive judgments in areas such as going concern, auditors will need to re-evaluate how they undertake normal auditing activities. There are challenges ahead, but respondents also spoke openly about opportunities.’
ACCA fellow, Dato' Lock Peng Kuan, Managing Partner, Audit & Assurance, Baker Tilly Malaysia and Chair of ACCA Audit and Assurance Global Forum, adds: ‘The key factor in managing a crisis of any nature is, first, to maintain a strong element of trust within the organisation, and with clients. It is immensely heartening to see respondents put health and safety top of their actions in dealing with the pandemic.’
A significant 53% of respondents said they were experiencing pressures completing client services work, and over a third (36%) said they faced an inability to meet reporting deadlines - a point recognised in many jurisdictions where reporting deadlines have been flexed. A quarter said they’re experiencing difficulties in gathering audit evidence, and 27% said they saw an increased audit risk relating to valuation of assets, completeness of liabilities or going concern issues.
On the positive side, the 1,857 respondents to the global research from public practice and audit leaders have already reported significant opportunities for providing enhanced insights and value to audited entities through the audit process.
Focussing on the risks ahead for all businesses across all sectors, Mike Suffield concludes: ‘These immediate impacts will resonate into the future, and it’s important that we do not lose sight of business fundamentals. Even in the face of Covid-19, businesses large and small will still face existing risks such as cybersecurity. We need to remember that different ways of working and strategic reactions could change these risks or even introduce new ones. Ensuring that risks continue to be managed, both specifically in response to the crisis and more generally, is essential.’
Revenue and profit forecasts are being dramatically reduced. Among business leaders surveyed, 80% expect year-on-year revenue and profit to be significantly below forecasts. Smaller organisations have a more pessimistic view and among business leaders of the smallest organisations (fewer than 200 employees) 85% expect year-on-year revenue to be lower than the previous year, and 86% expect year-on-year profit to be lower.
In the face of a significant crisis such as COVID-19, it’s important for organisations to plan and perform financial reforecasts regularly. However, in practice, only 53% of respondents suggest that their organisations have performed a reforecast since the COVID-19 outbreak.
The data suggests many respondents remain unsure of the impact of different government interventions around the world in response to the COVID-19 crisis. While different business support strategies are being adopted, only 17% currently see these as effective. For most companies, employment and remuneration policies are under review to reduce cost, flex employment models and ensure compliance with emerging health and safety requirements. The data shows a range of other interventions already activated by some organisations, including recruitment freezes, salary freezes and removal of staff bonuses.