AICPA best practices for conducting remote audits in uncertain times

As such, the American Institute of Certified Public Accountants (AICPA) is sharing best practices to ensure auditors of private companies follow its Accounting Standard Board standards while working remotely. The agency hosted a Webcast on March 23 on private company auditing standards on remote auditing, with AICPA Chief Auditor Bob Dohrer and Andrew Prather, audit shareholder at Clark Nuber, sharing their insights.

An important consideration during a remote audit is that the auditing standards generally address “what” evidence is required and rarely dictate “how” the evidence is obtained. Dohrer encourages auditors to be creative and innovative while complying with the standards.

Scope limitations can, however, affect the auditor’s ability to complete procedures and the type of audit report to be issued. In the current environment, auditors may have difficulties accessing client records, testing internal controls, observing inventories, confirming accounts, obtaining updated cash flow forecasts needed for impairment and going concern analyses, performing subsequent event procedures, and obtaining representations from management and legal counsel.

During this crisis, there are new risks that require assessment and extra audit attention, including fraud, losses of customers, changes in supply chains, and changes to internal controls. The AICPA notes that auditors must maintain professional skepticism and make sure that the quality of audit evidence is still sufficient to reduce overall audit risks to the appropriate level. They may not be able to use analytics the same way as in prior audits, because historical comparisons have become difficult or impossible.

A major issue, according to the agency, is that existing internal controls over financial reporting may not be functioning. It is likely clients are processing transactions and preparing financial information differently because the people responsible for them are not in the office or the controls cannot work the same way in the current environment. There may be new risks that require changes in controls that have not been put in place or are not yet operating effectively. Auditors may not be able to rely on the effectiveness of internal controls as they usually do and may have to increase substantive testing. Even if not relying on internal controls, auditors must obtain evidence beyond inquiry that controls continue to be in place to prevent and detect material misstatements in the financial statements.

Accounting issues that need to be top of auditors’ minds right now include impairment of tangible and intangible assets, valuation of investments, financial instruments and credit losses, debt obligations, lease assets and liabilities, contingent liabilities, and revenue recognition. Management must evaluate the organization’s ability to continue as a going concern under GAAP requirements, the AICPA contends, and subsequent events relating to COVID-19 may require adjustments to the financial statements and/or additional disclosures.

It may be impossible for auditors to comply with the auditing standards to issue audit reports in certain client situations. Auditors should consider working with their clients on getting extensions to financial statement deadlines along with helping them obtain waivers or other contract modifications from financial institutions, lenders, and suppliers.

Dohrer advises that very few businesses will escape the repercussions of the pandemic. When working remotely, auditors need to have a different mindset and change their audit procedures in response to changes in their clients’ businesses and the economy overall.

The Webcast (without CPE) will be rebroadcast April 10 at 11 a.m. ET, and additional resources from the AICPA on COVID-19 are available at www.aicpa.org/coronavirus. Further, the Public Company Accounting Oversight Board (PCAOB) on April 2 published guidance with reminders for auditors of issuers and broker-dealers for audits nearing completion amid the ongoing pandemic.