Internal auditors will want to check out a recent publication from PwC on how to navigate core audit committee responsibilities amid the coronavirus pandemic.
Whether a pandemic-related disruption necessitates a reassessment of audit risk, audit committees “should ask management to take a fresh look at their internal audit annual plan and determine if it is still fit for purpose,” the PwC publication stated. “They will also want to focus on ways to optimize internal audit’s contributions in this new environment.”
Questions for audit committees to consider include:
- Has internal audit reviewed the audit plan and determined which projects might need to be canceled, postponed, or accelerated in this new environment?
- Do changes impact external audit’s plan to rely on internal audit’s work?
- In what ways can internal audit provide assurance to management and/or the audit committee that the control environment is addressing any new risks identified?
- In what ways can internal audit support the company in ensuring that it is addressing new regulatory requirements related to economic assistance, like the CARES Act?
External auditor oversight
With external auditor oversight, audit committees “will want to understand from the external auditor what may have changed from prior quarters in the conduct of their interim review,” PwC said. “Additionally, they will want to understand the external auditor’s perspective regarding potential changes in audit risk, management’s process for deriving significant estimates and impacts on internal control over financial reporting. Furthermore, the audit committee will want to understand the audit work that may have been performed over significant transactions or accounting judgments during the reporting period.”
Some audit committee considerations, as suggested by PwC, include:
- How has working remotely impacted the way the external auditor executed its interim review, including obtaining evidence of the company’s internal controls procedures?
- Are the form and frequency of communication and engagement working satisfactorily for both management and the external auditor, and does the auditor have sufficient access to personnel and documents to complete their work?
- What are the significant audit risks and how have they changed given the current conditions?
- How has the external auditor’s perspective on materiality changed due to management’s revised projections and what impact has that had on the audit scoping?
- As it relates to certain audit work generally performed on location (e.g., physical inventory observations), what alternatives are being planned?
PwC’s guidance also includes a discussion on the audit committee’s role in ethics and compliance oversight. Such considerations include, for example, whether to change the frequency and reporting criteria of whistleblower reporting to the board; whether a plan needs to be in place to perform virtual investigations in the event that certain matters warrant an investigation; and to what extent the company is prepared for a potential increase in whistleblower or ethics and compliance matters as employees transition back to a normal work environment.