In the current environment, most businesses — except for essential business — are pretty much shuttered. Or at least their business is being conducted by a workforce that’s at home working remotely.
It is very likely that for many audit engagements this year, the way that a business is processing its financial transactions impacting the financial statements is different from what the auditor understood it to be prior to the pandemic. That’s just out of necessity for businesses to be able to continue operations.
With this backdrop, a recent article in the Journal of Accountancy offers some tips for assessing financial controls that have likely changed as a result of the Coronavirus Crisis. The article, by authors Bob Dohrer, chief auditor of the AICPA, and Ken Tysiac, editorial director of the JofA, says auditors need to be thinking through a couple of issues that are going to be encountered. The first one is that it’s likely that if you’re looking at annual financial statements, there are going to be different systems of internal control, perhaps entirely different or at least partially different systems that have been in effect and operating throughout that 12-month period.
Auditors need to think about that. What did we know from last year? What did we understand? And how long did that continue this year before some of these changes were made? The auditor needs to obtain an understanding of what controls are now in place. How did they process transactions and what controls were in place at whichever point in time that transition occurred? The auditor needs to maintain an appropriate perspective on this matter. The length of time that new controls may have been in place, and the level of business activity while that system was in place, will drive the importance of gaining that understanding of the new controls and determining the controls relevant to the audit.