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Audit documentation requirement under COVID 19

COVID 19 pandemic has caused a great deal of uncertainty in the global trade & economy. This has resulted in impact in the financial market as well. The uncertainty arises primarily due to interruption in the production, disruption of supply chain, closure of office facilities, unavailability of personnel and communication between them.

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Due to restrictions caused by the COVID 19 pandemic and the related lockdown, several restrictions are faced by the auditors in terms of visiting the client location, meeting with the client, obtaining of audit evidence (through observation and discussion). However, to comply with the quality of audit as prescribed in the Auditing Standards, the auditors must carefully evaluate unique circumstances prevailing in their audit and assess the risk accordingly.

Areas which requires special attention and documentation are listed below:

Auditing Standard	Documentation requirement under COVID 19
SA 315 - Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its	Implication of COVID 19 on the operational disruption resulting in the change in the business model, reduced customer base, disruption in supply chain, contractual non-compliance, liquidity and working capital issue
SA 260 Communication with TCWG	Whether the impact of the COVID-19 has been incorporated into their risk assessment processes and how they have identified and assessed the significance of the emerging business risks. The auditor will only be able to form a conclusion relating to going concern once management has made its own assessment Inventory valuation at a date other than the date of financial statement i.e. 31.03.2020. The physical verification of inventory may be conducted at a date other than the date of financial statement. Whether the changes in the inventory from the inventory count date and the financial statement has been properly accounted. Alternate audit procedure - Subsequent sale of specific inventory acquired or purchased prior to physical verification
SA 560 - The Responsibilities of the auditor for the subsequent events i.e. events between the date of financial statements and the date of auditor's report	The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified.
SA 570 (Revised) Going Concern	Operational disruption is critically important for the going concern assessment. Auditors will need to consider whether the threat to liquidity as a result of supply/demand disruption presents a material uncertainty to the going concern status for the 12 months look forward period It is the responsibility of management to make the assessment as to whether the entity is a going concern Management should consider the impact of COVID-19 on customers, suppliers and employees. For example, could the entity continue to operate if employees are not able to physically present, and how reduced cash flows impact its working capital requirements. Management should also consider whether the insurance policies taken by the entity cover the losses arising from the COVID -19. The auditor will only be able to form a conclusion relating to going concern once management has made its own assessment If the entity is disclosing in their subsequent events disclosures that an estimate of impact cannot be made due to the evolving situation, this may result in a material uncertainty on going concern within the audit report
SA 580 Written Representation	Auditors need to assess whether any specific representations may be required to be obtained from the Management in relation to Managements' assessment of impact from the ongoing outbreak of COVID-19 on the financial statements for the year ending March 31, 2020 as well as for the reasonable foreseeable future
Reporting standards SA 700 (Revised) SA 705 (Revised) SA 706 (Revised)	Since in the current scenario there are high probabilities of going concern being affected, existence of material uncertainties relating to going concern, the principles enunciated in SA 570(Revised) also need to be considered particularly paragraphs 21 to 24 which prescribe manner of reporting in different situations
SA 701 – Communicating Key Audit Matters in Independent Auditor's Report	The auditor should evaluate whether the impact of the disruption caused because of COVID-19 to the operations of the entity, consequential impact on the financial statements would be a key audit matter and if determined so, the auditor would need to report the same along with how the matter was dealt in the Auditor's Report
SA 720 (Revised) The Auditor's responsibility relating to other information	Additional disclosure due to COVID 19: a. Risk assessment - Risk assessment due to COVID 19 b. Management discussion & analysis - Potential impact on their future operation c. Notes to financial statement - Specific disclosure under subsequent events accounting standard
SA 240 - Fraud Assessment	The impact of COVID-19 on businesses could be very significant and could put pressures on management to meet performance targets or market expectations. This raises the risk of the likelihood of fraud in the financial statements to a higher level which requires the auditor to exercise a much higher degree of skepticism

Some illustrative situations where the Auditor may need to express modified opinion due to COVID 19

The auditor is unable to obtain sufficient appropriate audit evidence relating to the material component audited by the other auditor as per SA 600 due to COVID-19 pandemic.
The financial impact arising out of the COVID-19 outbreak are not accounted or reported or disclosed as per the prescribed Accounting Standards, in the financial statements
The auditor has communicated misstatements to the management and those charged with governance relating to COVID-19 as per SA 450, Evaluation of Misstatements Identified during the Audit and the management or TCWG refuses to correct such misstatements, that are individually or in aggregate, material to the financial statements.

Audit documentation requirement under COVID 19

Areas which requires special attention and documentation are listed below:

Some illustrative situations where the Auditor may need to express modified opinion due to COVID 19

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