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UK’s FRC provides updated guidance in relation to COVID-19

The UK’s Financial Reporting Council (FRC) has updated its guidance in relation to the COVID-19 pandemic.

COVID-19 has caused much uncertainty for many companies’ future operations which in turn has consequences for those proposing to report results in the coming months, as well as for their auditors.

Some companies and auditors are facing practical difficulties in preparing accounts and carrying out audits. Given restrictions on travel, meetings, and access to company sites in some jurisdictions, audit firms may need to consider developing alternative procedures to gather sufficient and appropriate audit evidence.

The FRC has expressed its concern that the current situation should not undermine the delivery of high-quality audits and has said audits should continue to comply fully with required standards.

However, the regulator noted that additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting.

Auditors will need to consider the impact of COVID-19 on:

  • How they gather sufficient, appropriate audit evidence, recognising that the planned audit approach may need to change and alternative procedures developed;
  • How the group auditor proposes to review the work of component auditors;
  • The auditor’s assessment of going concern and the prospects of an audited company;
  • The adequacy of disclosures made by management about the impact of COVID-19 on the company;
  • The need for the auditor to reassess key aspects of their audit as a result of the fast-changing situation, which may require management to provide further evidence.

 

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.

Companies also need to understand that it is vital auditors have sufficient time and support to carry out their work to a high standard, including reassessing work done to reflect changed circumstances. In some cases, companies may need to reconsider their reporting deadlines.

FRC executive director of supervision David Rule 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.

“In many instances, auditors will need to consider developing alternative audit procedures to gather sufficient, appropriate audit evidence.

He concluded: “The FRC remains in close discussions with the largest audit firms to ensure any issues are being appropriately managed.”

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