PCAOB Releases Staff Spotlight Reminding Audit Firms of Responsibilities During COVID-19 Crisis

Amid the evolving challenges and looming economic impacts of the COVID-19 pandemic, the PCAOB Staff released a Spotlight document reminding auditors of their responsibilities to identify, assess, and respond to risks of material misstatement and adhere to professional standards. The document primarily discusses the impact that the pandemic might have on an auditor’s risk assessment procedures, the execution of the audit, and potential impacts to client financial statements. Potential impacts to the auditor’s report and firms’ quality control considerations are also briefly discussed.

Risk Assessment

The PCAOB reminded auditors that the risk assessment process is not a discrete phase of an audit but rather a continual process that should be evaluated continuously over the course of the engagement. As new risks related to the pandemic emerge, auditors should consider these risks and design procedures that will adequately address them. Possible risks to consider include:

  • Changing incentives or increased pressures on management that might lead to new fraud risks
  • Changes or increased pressures on processes, systems or controls that might give rise to increased risk of error

As a result of these changes, initial responses to previously assessed risks might not be adequate, and revised procedures should be considered. If changes to the planned audit strategy or identified risks are significant, these changes are required to be communicated to the audit committee.

Execution of the Audit

The COVID-19 crisis may cause additional challenges in completing the audit, such as delays by management in responding to auditors’ inquiries or limited access to company personnel or information. These factors, along with a modified risk assessment, should cause the auditor to consider the following when modifying audit procedures or designing additional audit procedures:

  • Consider obtaining audit evidence of a different form. Reliability of such evidence should be evaluated.
  • Enhancing direction and supervision of less-experienced team members
  • Increasing the involvement of more senior or experienced team members in performing procedures related to complex issues
  • Involving, or increasing the involvement of, specialists

Presentation and Disclosure

Although the economic effects of the COVID-19 crisis on companies might vary widely, depending on industry, geography, or other factors, the auditor should evaluate and challenge management’s presentation of the financial statements, including the disclosures. The PCAOB specifically highlighted the following areas likely to be impacted:

  • Subsequent events disclosures
  • Going concern evaluation and disclosure
  • Asset valuation, including impairment triggers and related assessments
  • Accounting estimates, particularly those related to fair value measurement
  • Revenue recognition, particularly with regard to contract modifications
  • Leases
  • Hedging
  • Income taxes
  • Provisions, allowances, and loss contingencies
  • Debt modifications or restructuring
  • Debt covenants, other regulatory ratios, and minimum net capital requirements for broker-dealers
  • Disclosures related to liquidity, risks or uncertainties

Lastly, the Spotlight discusses potential impacts to the auditor’s report, such as the auditor’s determination and reporting of critical audit matters (CAMs), and firms’ quality control considerations in light of the COVID-19 pandemic. For additional details, the PCAOB Staff Spotlight document can be found here: https://pcaobus.org/News/Releases/Pages/PCAOB-staff-provides-reminders-audits-nearing-completion-COVID-19.aspx

Please visit our Coronavirus resource page at schneiderdowns.com/our-thoughts-on/category/Coronavirus for related content.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

Evolving Cyber Threats of the New Normal
Important Update on the Paycheck Protection Program under the CARES Act
Extension of the Main Street Lending Program
Temporary 100% Deduction of Business Meals Proposed by Senate Republicans
Staying Ahead of The Curve
Main Street Loan Modifications for Not-for-Profit Organizations

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102