Auditors must emphasize continuous monitoring and reassessment of relevant implications in navigating the economic climate following Russia’s invasion of Ukraine, according to guidance from the Public Company Accounting Oversight Board (PCAOB).
The PCAOB on March 31 released a spotlight document highlighting key considerations for auditors of issuers and broker-dealers planning and conducting audits and reviews of interim financial information amid the current business landscape. Many global companies have exited Ukraine over fears of safety or ceased operations in Russia to avoid sanctions or reputation damage. The effects are being felt in the United States as well, with rising inflation and supply chain issues leading to increased volatility.
“Beyond its terrible human toll, Russia’s invasion of Ukraine has produced economic and market implications that are still taking shape,” said PCAOB Chair Erica Williams in a news release. “Our spotlight addresses key considerations for auditors, starting with a reminder of their obligation to comply with PCAOB standards and to exercise due professional care, which may take more time or effort in highly challenging or unprecedented circumstances.”
As the situation continues to unfold, auditors should remain aware of developments and the potential for broader economic issues, the PCAOB warned. Knowledge obtained from past audits or interim reviews may no longer be as relevant, the regulator continued, as risks of material misstatement might arise from the following:
- Supply chain disruptions and their effect on a company meeting contractual obligations.
- Boycotts or suspensions of business with key partners in Russia that might negatively affect projected earnings long term.
- Access to funds and other liquidity issues.
- Reallocation of resources because of unforeseen circumstances.
- Market and counterparty risks surfacing during periods of heightened volatility and global uncertainties.
Specific audit areas highlighted by the PCAOB as requiring extra diligence include going concern, asset impairment and valuation, accounting estimates, revenue, debt, and consolidation. The regulator further warned of increased risk regarding cybersecurity, fraud, and sanctions violations.
Among its considerations highlighted, the PCAOB suggested increased communications with audit committees might be necessitated by the rapidly changing environment. The organization has previously lauded the importance of communication when assessing positive examples of how auditors and audit committees navigated the volatility of the onset of the Covid-19 pandemic.