English Institute of Chartered Accountants issues guide to users in understanding audit opinions influenced by COVID 19

English Institute of Chartered Accountants issues guide to users in understanding audit opinions influenced by COVID 19

"...while COVID-19 will affect businesses in different ways and to different degrees, it is likely to have a significant impact on audit reports on company financial statements for the foreseeable future.

The FAQs below, created by the Audit and Assurance Faculty, are designed to help investors and other users of audit reports to better understand the different types of audit report wordings used by auditors, and their significance.

How might COVID-19 impact audit reports?

We expect to see more ‘modified’ audit opinions as a result of COVID-19. The possible types of audit opinions that auditors may give are explained below.

We also expect to see more ‘material uncertainties’ highlighted in audit reports in relation to going concern, and more ‘emphases of matter’. These do not, however, modify the audit opinion. These are also explained below.

For listed entities and other public interest entities, we are likely to see more ‘key audit matters’ (sometimes referred to as ‘KAM’) included by auditors... "

IASB Exposure Draft on COVID related Rent Concessions

The International Accounting Standards Board (Board) is seeking feedback on the Exposure Draft Covid-19-Related Rent Concessions. The Exposure Draft sets out a proposal to permit lessees, as a practical expedient, not to assess whether particular covid-19-related rent concessions are a lease modification and, instead, account for those rent concessions as if they were not lease modifications.

The deadline for submitting comments on the Exposure Draft is 8 May 2020. The Board will consider feedback on the Exposure Draft in developing its final requirements. The Board plans to issue final amendments by the end of May 2020.

The Quality of a Board will be well judged by its Responsiveness to this COVID Crisis

The Quality of a Board will be well judged by its Responsiveness to this COVID Crisis

"... There will be many... key stakeholders to take into account...Regular communications and discussions with these stakeholders about emergency policies and actions will be critical...There is no single right way to do this, but many boards will establish a Covid-19 Crisis Committee. Responsibility for multiple and urgent day-to-day decisions can be delegated to the Covid-19 Crisis Committee [with] a clear written framework under which the Covid-19 Crisis Committee can make decisions, reverting to the board when decisions fall outside the framework.

In addition to the executive management, this is a time for the chair and non-executive directors to visibly assume and demonstrate governance leadership...For example, non-executive directors could engage with and report back to boards on the views of key stakeholders."

Non-Financial Risks & the Role of Internal Audit

Banks sometimes under-estimate the importance of non-financial risks until they emerge as the serious hazards that they represent. Internal audit with adequate distance from management and a productive relationship with the Board may be vital.

"...Internal auditors should have sufficient seniority to be able to challenge senior executives inside the big banks, according to a new practice guide circulated to financial sector regulators last week by the Institute of Internal Auditors Australia.

The institute wants to bolster the power and independence of internal audit teams and improve the quality of risk-related information being reported to bank boards...

...the bank's new chairman, John McFarlane said: ""We need to have more effective management of non-financial risks, as well as a strong risk culture across the organisation in the first, second and third lines of management, as well as strong board oversight."..."