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The impact of coronavirus on accounting and auditing standards: Part 1

Written on May 1, 2020
By Jessica Salerno, OSCPA senior content manager


This is part one of a two-part article. Check back next week for the second part.

As the profession continues to adapt to the coronavirus, accountants everywhere are forced to reconsider how to do their jobs. The chief auditor at the AICPA said the key is to have a clear knowledge of what the standards require.

“I think we've learned things that will carry into the future,” said Bob Dohrer, CPA. “I think a lot of that has to do with the mindset that we can think creatively about how to accomplish the requirements in US auditing standards.”

In an April 22 interview with OSCPA, Dohrer answered a range of questions about how accountants and auditors should go about their work when working in an environment that’s remote, with business closures and unexpected government guidance.

Considerations for planning remote audit work

When planning a remote audit, Dohrer suggested focusing on the procedures that can be done virtually.

“For an audit in this type of environment, the focus really needs to be on a clear understanding of what the auditing standards require,” he said. “And in that context the auditing standards tell you or indicate what the audit evidence is that you're required to obtain, to support your audit opinion. But generally, in very few instances, do they actually require a specific way to obtain that information.”

Dohrer said the first step needs to be a clear understanding of what needs to be obtained. Next is how to obtain that information and evidence, and the last step is checking the standards to see if it instructs collecting that evidence in a particular way.

Reliance on scanned documents and signatures, and signing management representation letters electronically

Dohrer said management letters can be signed electronically, but you need to be familiar with state laws and regulations about the use of electronic signatures as legally binding. He also said it’s up to the firm’s management policies to an extent, because some might require a manual signature.

Performing physical inventory observations

“Perhaps in the not extremely distant future, we may actually have the opportunity to go observe an inventory,” he said. “It will be after client’s year end date possibly, but you may be able to do that and in that case that’s not too unusual from situations we've encountered before where we were unable to observe inventory right at the client’s year end date.” 

And in those cases where the inventory observations were pushed, Dohrer said it usually means rolling transactions back from a subsequent observation date, or rolling them forward from an interim observation date.

He said the AICPA is asked often about using technology to observe client inventory and he urged familiarity with auditing standards, particularly AU-C Section 501.

The section’s objective is to test the client's inventory taking or inventory records against an observation of the inventory by the auditor. The standard talks about audits being done in person, but one of the listed reasons that might not be feasible is the auditor’s health or safety. 

“And we certainly believe that the pandemic fits into that category of jeopardizing an auditor’s safety or health,” he said. “We think that practicality is in play in that respect. We do believe that it's a reasonable interpretation that inventory can be observed using some sort of video technology.”

Dohrer said preferably it is a live streamed video observation, best done when a client employee is on site. And although the auditor cannot be there in person, using this streaming video technology the auditor can direct the individual holding the camera to take them where they want to go in the location so the auditor can count. Other warehouses, depending on the nature of the inventory, may have security cameras that could be accessed by the auditor to view the inventory.

Difficulty obtaining confirmations or reports because of extraordinary circumstances, such as business closures

“In this environment that there may not be anybody at the third party that's in the office to receive sent mail or even to respond electronically if the third-party employees don't have access to those types of requests,” Dohrer said.

He said this is a time to think of alternative procedures, to obtaining the information that you need and in requesting the confirmation.

“We have to remember that there may very well the situations that we encounter where we simply cannot obtain the audit evidence that that's required or that's necessary,” he said.  “And in those situations, our standards describe that as a limitation on the scope of the engagement and a modification to the report would be appropriate if the audit evidence relates to the material, account balance class or transaction.”