Out-Law News | 18 Mar 2020 | 10:48 am | 2 min. read
The regulator has issued new guidance to auditors facing practical difficulties in carrying out audits as a result of the pandemic. It also announced that it is holding weekly calls with the largest UK audit firms at which it is monitoring the impact of coronavirus, officially Covid-19, on financial reporting.
In its guidance, the FRC emphasised that the outbreak "should not undermine the delivery of high-quality audits". Audit firms may need to consider developing alternative procedures which will allow them to gather sufficient, appropriate evidence to support their reports despite current restrictions on travel, meetings and access to company sites in some jurisdictions, it said.
This is new territory for everyone and we need to know that regulators will be pragmatic and constructive in the guidance they give and their attitude to compliance.
David Rule, the FRC's executive director of supervision, said: "Given the growing impact of coronavirus on the global economy and the high degree of uncertainty, high-quality audits are vital to ensure users of financial statements are properly informed".
"Audits should continue to comply fully with required standards. Additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting," he said.
The FRC issued guidance last month on the potential need for companies to refer to risks associated with the outbreak, then concentrated in China, in the context of the legal duty for public limited companies to include details of the principal risks and uncertainties facing the company in their annual reports.
In its updated guidance, the FRC noted that, for many companies, coronavirus-related uncertainty had "increased sharply". It said that this is likely to impact on the auditor's assessment of an audited company's going concern and prospects, and that auditors would also have to consider reassessing key aspects of their audit given the speed with which the situation is changing "right up to the point of signing the auditor's report".
Auditors should ensure that disclosures made by management about the impact the pandemic is having on the company are adequate to properly inform those relying on the company's financial statements, and seek further information where necessary if aspects of the audit already completed required further review given the fast-moving situation.
"Auditors will need to engage with the entities they audit to ensure they set clear expectations as to the level of disclosure they expect to see in annual reports to communicate the impact and risk of Covid-19 on the company," the FRC said in the guidance.
They also need to consider the extent to which the pandemic has impacted on delivery of the audit, explaining this in their report where necessary – for example, as a key audit matter, according to the guidance.
Corporate governance expert Martin Webster of Pinsent Masons, the law firm behind Out-Law, said: "This is sensible guidance for the audit profession, and good for companies to know that these things are being thought about by regulators and appropriate measures put in place".
"This is new territory for everyone and we need to know that regulators will be pragmatic and constructive in the guidance they give and their attitude to compliance," he said.
18 Feb 2020
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