The changes in the business environment caused by the COVID-19 pandemic have had significant impacts on the risks and results that auditors assess and test during their engagements.
In many cases, revenue has been drastically altered; supply chain challenges and labor problems have presented new risk; and business strategies have changed rapidly as audit clients try and survive and thrive in this new environment.
“Auditors have to be agile and flexible in the midst of almost two years of remote work. [manage]The one constant that arguably was thrust upon our society in 2020 and has continued through 2021,” George Botic said Wednesday at AICPA & CIMA Conferences on Current SEC and PCAOB Advances. “Unpredictable Change, and How We Adapt and Respond to It.”
Botic stated that the PCAOB will inspect audit firms in 2022 and will focus on areas that are driven primarily by the current economic climate. These include:
- Initial public offerings
- Mergers and acquisitions
- Widespread disruption of supply chains
- Certain industries may experience negative effects from COVID-19.
- Audits of special purpose acquisition companies (SPACs), and de-SPAC transactions are a constant focus.
Broker-dealer inspections will focus on the audits of broker-dealers that are responsible for maintaining custody of customer securities and holding customer funds.
The PCAOB found that confirmations are causing problems in audit firms. Botic stated that certain firms are not following sufficient procedures when a service supplier is used in the confirmation process. He also said that an auditor must still maintain control over the confirmation process.
Botic stated that audit firms should examine whether their policies and procedures regarding the use of a service provider for sending and receiving confirmations provide reasonable assurances that their personnel adhere to professional standards.
The pandemic has also created challenges for audit firms. The PCAOB is closely watching. Botic stated that an audit firm’s quality control policies should consider the importance of staff experience and knowledge. Firms should also be aware of the risks associated with staff turnover for audit quality.
He said that rapid staff turnover could result in increased workloads, as well as fewer experienced professionals who have a deep understanding of the methodology, policies and procedures of an audit firm.
Botic stated that his key takeaways for this year’s challenging year were:
- It is important to exercise professional care and professional skepticism during the audit. He said that while both should be used at all times, the continued disruption caused by the pandemic as well as the risks associated with current economic conditions only serve to increase their importance.
- A thorough and continuous risk assessment must be done. It is also important to understand the impact of changes in the current economic climate. He said that auditors should review their initial assessment of risk and adjust planned audit procedures as circumstances change.
- Auditors should be aware of fraud procedures and incorporate unpredictability into their engagements. “I mentioned it last year,” he stated. “Given the ongoing uncertainties and my desire to reiterate its importance to audit and investors’ expectations, I want to reiterate this.”
Ken Tysiac ([email protected]) is the JofAThe editor of this publication.
