ICAI’s Guidelines for Audits of Going Concern amid COVID-19

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ICAI’s Guidelines for Audits of Going Concern amid COVID-19

guidelines for Audits of Going Concern

The apex body of Chartered accountants Institute of Chartered Accountants of India (ICAI) has released detailed guidelines for auditors to assess the going Concern nature of the company and audit considerations due to the pandemic situation.

The guideline also included that the transparency about auditor reporting and information about the financial condition of the unit is very important to our current condition of economy. During this economic crisis raised due to the Covid-19,  being concerned is one of the topics that auditors are asking frequently about their contacts with ICAI.

ICAI’s guideline states that “The auditor would be more sceptical about impairment assessment in the current scenario. It should be noted that the auditor is not performing procedures to assess the impact of Covid-19 itself rather the procedures are being performed in respect of specific items of financial statements or assumptions,” ICAI guidelines said.

Through the guideline, ICAI also tried to highlight the Auditor’s responsibility and said, “while considering the auditor’s reporting in respect of the impact of COVID-19 on the financial statements of an entity, the auditor should consider whether sufficient and appropriate audit evidence is available for the auditor to be able to assess the factors set out below. These factors are indicative and not exhaustive and the auditor should always maintain professional scepticism and apply professional judgment on a case to case basis and consider other factors as applicable.”

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Through the guideline, the auditors have been also asked to go through analyst reports, industry reports,  and any third party studies for the purpose of the whole evaluation. Meanwhile, the guidelines also shed light on management responsibilities too.

The institution discussed the potential impact of this pandemic on the auditor’s report, and while doing that, ICAI highlighted that the auditor needs to revise his opinion on the financial statements if some circumstances such as improper accounting or insufficient disclosures and the inability to obtain sufficient audit evidence occur.

In the response of a common question, whether the impact of Coronavirus pandemic is a key audit matter (KAM) in an audit, ICAI said that “The impact of COVID-19 on specific areas of the financial statements needs to be evaluated for the purpose of reporting KAM. For example, physical verification of inventory using alternative audit procedures may involve more effort vis-à -vis a non-COVID-19 scenario. Similarly, the auditor would be more sceptical about impairment assessment in the current scenario.”

ICAI also instructed the auditors that after assessing the impact of COVID-19 on the backdrop of the epidemic, auditors will need to include a paragraph on the case’s emphasis to highlight the “fundamental of users regarding financial statements” aspects.

ICAI also permitted them to give adverse opinion, qualification or disclaimer in the reports if the disclosers don’t meet the requirements or they are not satisfactory.

Institute of Chartered Accountants of India (ICAI) has also suggested an alternative audit procedure for physical verification in cases where observing the inventory and balance sheet is not possible, It these cases they can engage with the internal auditor or even another chartered accountant to observe inventory or stock verification on their behalf, with the use of technology.

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