During the novel coronavirus (COVID-19) pandemic, many people have been working from home, including most accounting professionals. These remote working conditions have altered the traditional audit process.
Benefits of technology for remote auditing
Fortunately, in recent years, many accounting firms have been transitioning to remote auditing for certain procedures. Specifically, they’ve invested in staff training and technology — such as cloud computing, remote access, videoconferencing software and drones with cameras — to work digitally. Though in many cases remote auditing is a necessity during the pandemic, it also can help reduce business disruptions and costs during normal operating conditions.
Julie Bell Lindsay, executive director of the Center for Audit Quality, an affiliate of the American Institute of Certified Public Accountants (AICPA) that represents the auditing profession, said that COVID-19 hasn’t had a huge impact on the ability of auditors to work effectively so far in 2020. “The audit profession is largely already built to adjust to the way in which we are operating,” Lindsay said. “I would say that audit firms are quickly [adapting] to this new normal that we are in.”
When the social distancing measures went into effect in the United States around mid-March, many calendar-year audits were already done. Auditors are now reviewing first quarter results, but they don’t usually carry out the same rigorous procedures used for year-end results. They largely do reviews, not audits, of quarterly reports. However, there are a handful of companies that have fiscal years that end in March or later.
Potential challenges and risks of remote auditing
Auditors haven’t previously faced a situation where everything must be done remotely. Though the AICPA’s Chief Auditor Bob Dohrer believes that CPAs have weathered the COVID-19 storm well, he has identified the following three aspects of audits that are generally more effective when done in person or on-site:
- Understanding of the company’s internal control process. This is a critical component when assessing risk during the planning stage. However, it’s challenging to re-evaluate how transactions are being processed by employees who now work remotely, rather than on-site as in prior periods. The auditor also needs to be able to determine whether the controls were adequately designed, put in place and operate effectively. Moreover, auditors have historically relied on the effectiveness of client’s controls and testing of controls. But, during a pandemic, auditors can’t do so as much.
- Fraud-related inquiries. The auditing standard on fraud states that generally inquiry of management and those charged with governance, with respect to fraud, is most effective when it’s done in person. This allows for the auditor to “read the body language, judge the dynamics in a room if there is more than one person involved and that sort of thing,” explained Dohrer.
- Inventory observations. The auditing standard says the auditor needs to obtain sufficient, appropriate audit evidence that inventory exists and is in good condition. Normally, auditors go where inventory is located and observe the counting process. They also perform independent test counts and check them against the inventory records. With COVID-19 social distancing rules and stay-at-home orders, auditors may not be able to travel to the company’s facilities — and employees might not be there physically to perform the counts.
“We’ve been providing some guidance to auditors on different alternatives; they may be able to use video capabilities,” Dohrer said. They can also use cameras that have drones to do remote inventory observations. “Many warehouse locations have security cameras stations throughout the warehouse for other reasons,” he added. “Those cameras can actually be utilized to provide a video feed of a counting process or to monitor movement within the warehouse.”
Consider modified audit reports
Dohrer notes that some audit firms may not be equipped to audit remotely. For firms that lack the technology or access to data needed to comply with all the requirements of the auditing standards, Dohrer advises issuing modified audit reports with scope restrictions and limitations. Contact your CPA for more information about remote auditing and possible modifications to your company’s audit report during these challenging times. For other articles related to COVID – 19 please visit our blog