In these uncertain times, the true purpose of audit is becoming increasingly clear. As the Covid-19 crisis unfolds, businesses and their stakeholders need clarity and understanding amid the confusion. They need clarity on their financial figures, an understanding of what those figures mean, and assurance over the integrity of this information.
The pandemic has specific implications for auditing firms. For example, social distancing and remote working may make it more difficult to access the data and personnel needed to support the execution of an audit and expression of an audit opinion.
Although digital advances continue to influence how audits are conducted and how evidence is gathered, as well as aspects of the reporting process, for many audit firms the crisis is creating a systemic shock to normal client engagement activities.
Many business owners are wondering “what’s next”? What are the steps to recover from this pandemic?
Below are some considerations that may prove useful in the process to recovery. The matters presented are not an exhaustive list but some of the considerations for businesses.
As a result of the almost immediate closure of the doors of many businesses, properly determining the value of inventory may pose some challenges. In light of this, it is recommended that a physical count be carried out on inventory with the objective of identifying obsolete items and determining whether any provision is required to restate the value of inventory.
Consideration should also be given to whether any items of inventory were acquired or manufactured according to specific customers’ specifications, and the sale of which may now be doubtful, because of the uncertainty of the customer’s continued operations.
- Accounts receivables
Consider the recoverability of these accounts receivables as many customers would have been negatively impacted by the pandemic. Determine the provision to be made for bad debts and journalise in the books of account. This should then be reassessed on a regular basis to determine if any change is to be made as it regards the recoverability of these bad debts.
- Budgets and forecasts
Consider reassessing your annual budgets as these would have been drastically impacted at this time. Also pay close attention to the possibility of short term losses in the near future as the economy goes through a period of recovery.
- Going concern implications
Due to the restrictions on business operations under the period of lockdown, many businesses would have suffered a decrease in revenue and resulting cash inflows. As a result of this and cash being tied up in working capital, the company will be subject to liquidity pressures and this by extension may impact their going concern status. Companies should approach their financial institutions to discuss short-term, medium-term, and/ or long term financial assistance to ease the recovery process.
- Crisis management team
Consider establishing a crisis management team which can include heads of key departments to assess all of the areas mentioned above and initiate plans to implement. These plans should be continuously reassessed on a regular basis to deal with any changes in the economy as the business environment recovers from its current state.