Chartered accountants‘ apex body ICAI has come out with detailed guidelines on Going Concern, Key Considerations for Auditors amid COVID-19.
Business activities have been disrupted by the outbreak and the country is also on lockdown to curb the spreading of coronavirus infections.
Under the current circumstances, the ICAI said auditors, “timely and effective communication between the management and the auditor is essential in ensuring that both are able to fulfill their respective responsibilities in relation to the going concern aspect during these uncertain times.”
The guidance issued by the ICAI focuses on the implications of the COVID-19 pandemic for the auditor’s work related to going concerned, including the matters an auditor should consider forgoing concern assessment due to COVID-19 and inherent uncertainty; management and the auditor’s respective responsibilities in relation to going concerned; period of going concern assessment and implications for the auditor’s report, which may include depending on the nature and circumstances of the entity.
The Institute while addressing the question that how should an auditor report a material uncertainty related to going concern in the auditor’s report and how does the adequacy of management’s related disclosures affect the auditor’s report, said, “the identification of a material uncertainty relating to going concerned is a matter that is important to users’ understanding of the financial statements. The use of a separate section in the auditor’s report with a heading that includes reference to the fact that a material uncertainty relating to going concerned exists alerts users to this circumstance.”
The guidelines issued by the Institute addressed various questions and at the same time included in it the Appendix pertaining to additional Audit Procedures When Events or Conditions Are Identified.
Audit procedures that are relevant to the requirement in paragraph 16 of SA 570 (Revised) may include the Analyzing and discussing cash flow, profit and other relevant forecasts with management; analyzing and discussing the entity’s latest available interim financial statements; reading the terms of debentures and loan agreements and determining whether any have been breached; reading minutes of the meetings of shareholders, those charged with governance and relevant committees for reference to financing difficulties; inquiring of the entity’s legal counsel regarding the existence of litigation and claims and the reasonableness of management’s assessments of their outcome and the estimate of their financial implications; confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds; evaluating the entity’s plans to deal with unfilled customer orders; performing audit procedures regarding subsequent events to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern; confirming the existence, terms and adequacy of borrowing facilities; obtaining and reviewing reports of regulatory actions and determining the adequacy of support for any planned disposals of assets.
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