Two key objectives of any auditor are to obtain sufficient, appropriate audit evidence to support their audit opinion, and to then report their opinion on the financial statements based on the evidence obtained.
On 16th March 2020 the FRC issued guidance to auditors on Audit Issues Arising from the Consequences of the Covid-19 (Coronavirus) Pandemic.
The guidance deals with practical difficulties facing companies and auditors in preparing financial statements and carrying out audits. In our guidance we highlighted the possibility that current circumstances may require auditors to consider modifying their audit opinion.
The need for a modified opinion may arise because certain audit procedures cannot be performed (for example physical inventory testing because of travel restrictions), and no other procedures can be undertaken to produce the required volume or quality of reliable audit evidence. Alternatively, management’s key judgements in areas such as asset and liability valuations, or the assumptions and cashflow estimates underpinning the use of the going
concern basis of accounting, may be difficult to support in the light of wider economic and political uncertainty, or not agreed by the auditor.
Two primary factors contribute to the kind of modified opinion which auditors can give. These are:
- whether the auditor has been able to obtain sufficient, appropriate audit evidence to form an opinion on whether the financial statements are free from material misstatement; and
- how pervasive any error may be to the financial statements.
As a result, audit opinions may be modified. The update includes a very useful decision-tree summary of the considerations.
For further detail please click here.