Auditor Challenges in conducting Remote Audits during the Covid-19 Pandemic
An Introduction the Situation
Russia's invasion of Ukraine has created numerous challenges for companies and auditors in addition to the human toll it has caused. In many cases, offices of companies and auditors will be closed and obtaining sufficient appropriate evidence will be impossible.There will be different challenges for entities located in Russia and Belarus, where business will be continuing but under sanctions and other restrictions, and accordingly, there will be different impacts on auditing. Taking into account that entities are operating in uncertain conditions. The auditor's risk assessment will need to reflect changes within the audited entity's business and operating environment. The situation may also impact on the auditor's conduct of audit work, when accumulating sufficient appropriate audit evidence
See ISA (UK) 500 Audit Evidence
International Standards on Auditing (ISAs)
Overall, the key point to note is that the International Standards on Auditing (ISAs) (UK) still apply and must be complied with throughout the audit, despite the ongoing conflict. At the risk assessment stage, auditors should be taking the war into account, ensuring that the audit approach has considered any changes and relevant challenges resulting from the war. For example, disruption to the business may result in a significant going concern risk, or there may be a substantial impact on the supply chain that impacts the accounts enough to require specific disclosure in the accounts.
Non-compliance with laws and regulation (NOCLAR)
With frequent changes to sanctions and connected restrictions, and steps to reduce reliance on Russian oil and gas supplies, it will often be difficult for management to ensure that they have complied with laws and regulations, let alone articulate how they have complied. Auditors fulfilling their responsibilities under ISAs with respect to laws and regulations will be auditing and reporting on a fast-changing situation.
See ISA (UK) 250 Section A Consideration of Laws and Regulations in an Audit of Financial Statements and ISA (UK) 700 Forming an Opinion and Reporting on Financial Statements.
Management of entities affected by the crisis, including those with operations in Ukraine, will need to evaluate the impact on the going concern assessment and revisit this as necessary. The auditor, correspondingly, will need to demonstrate professional scepticism and judgment when auditing going concern, to consider whether management has taken all relevant factors into account. These factors are likely to include:
financing and funding;
companies that have put a stop on sales to the Russian market;
business disruption, including supply chain issues;
insurance cover of assets;
currency valuation; and
investments in Russian entities.
Sanctions on Russia and Belarus
At this stage, auditors should also consider changing laws and regulations relating to sanctions placed on Russia and Belarus. Changes are frequent due to the crisis, and it may well be difficult for management themselves to ensure compliance with laws and regulations. Proof of compliance may also be difficult to obtain and auditors must be vigilant to non-compliance up to the date of signing of the audit report. As a result of the above, you may want to specifically consider these points ahead of the audit to ensure they can answer any questions.
The sanctions on Russia and Belarus have also resulted in the need for additional scrutiny to understand who the directors and Ultimate Beneficial Owners are when taking on new clients. It may also mean that checks already carried out will need redoing, to ensure individuals aren’t on the sanctions list. Should an individual be on the list, the auditor is obligated to report any information on sanctions breaches to the Office of Financial Sanctions Implementation as soon as practicable.
With cash at bank and investment assets frozen by ‘Western’ banks and in some cases tangible assets such as properties and yachts being seized, auditors will need to review management’s assessment of impairment indicators. Other assets that might be impaired include loans or other debtors due from companies in Ukraine, Russia, or Belarus, where there may now be uncertainty over the ability or willingness to repay.
“Audit and the Ukraine Crisis.” Moore & Smalley, 24 May 2022, https://mooreandsmalley.co.uk/insights/knowledge-post/audit-and-the-ukraine-crisis/.
Tysiac, Ken. “How the war in Ukraine affects auditors' responsibilities.” Journal of Accountancy, 1 April 2022, https://www.journalofaccountancy.com/news/2022/apr/how-war-ukraine-affects-auditors-responsibilities.html.
“War in Ukraine: the auditing implications.” ICAEW.com, 15 March 2022, https://www.icaew.com/insights/viewpoints-on-the-news/2022/mar-2022/war-in-ukraine-the-auditing-implications-summary.