The COVID-19 pandemic has a huge impact on companies and also auditors had to change to the new circumstances. On site/offline audits shifted rapidly into off site/online audits. Auditors had to rely heavily on information technology (IT) in communication, but also in performing audit work, like plant and inventory observations and stock counts, using more advanced technology, such as robots, digital cameras, drones etc. Although IT driven audits are becoming more common, the main concern for the coming years will be the going concern assumption used in the preparation and audit of the financial statements of companies.

Basis of going concern and the role of the auditor

Under the basis of going concern, the financial statements are prepared on the assumption that the company is a going concern and will continue its operations for the foreseeable future. The auditor’s responsibility is to obtain sufficient and appropriate audit evidence regarding the going concern basis of the financial statements, and to conclude, based on the audit evidence received, whether a material uncertainty exists about the company’s ability to continue as a going concern.

The following scenarios are possible:

1)   Going concern is not uncertain

2)   Uncertain but not impossible to continue as a going concern

3)   Material uncertainty to continue as a going concern

4)   Discontinued operations

Impact for companies

It is expected that, depending on above mentioned scenarios, the director’s report, the notes of the financial statements but also (additional) disclosures in the auditor’s statements will change / increase in the (near) future and it is foreseeable that the time spent by auditors on the going concern assumption will increase. As the risk approach of an auditor is mostly based on the likelihood and magnitude of risks in the financial statements (looking back) probably nobody could have foreseen the impact of the COVID-19 pandemic. It is also expected that even less likely events are weighted with more/high impact in the future and therefore also on the going concern assumption in the (external) (financial) reporting of your company.

Future of audit and auditors

The environment of audit firms and auditors will change due to going concern issues, but what will be the effect for your company in relation to possible scenarios?

More information

Would you like more information about our audit services and /or support in (external) reporting issues related to the going concern assessment or about how to account for the impact of corona in your financial statements?

Then contact one of our specialists.

Gerco Recter, Managing Partner from Auren The Netherlands.