2021 – 01/21

If 2020 taught us anything, it was the necessity of being adaptable to unexpected circumstances and being flexible in solving problems across all aspects of our lives. In the accounting world, for example, COVID-19 public health restrictions necessitated significant changes in how financial statement audits were performed.

When the COVID-19 restrictions came along in early 2020, our team was deep into fieldwork on several audit engagements. Typically, the majority of our audit fieldwork is performed on-site at client locations where client personnel and needed audit support is readily available. Of course, when the outbreak hit, many of our main audit contacts began working from home. This changed the basic interactions of the audit process. We were no longer able to simply stop by a client’s office when a question arose, or immediately access documents via hard copy or flash drives. With little warning of the restrictions the COVID-19 outbreak would bring about, we had to quickly modify our approach from an on-site to a remote process.

The changes in our procedures were most notable in relation to the collection of audit evidence.

Audit evidence includes a variety of information used to develop the auditor’s opinion. Audit evidence includes information contained in the accounting records underlying the financial statements and other information. Examples include documents such as account statements and receipts, information found in various business systems and observations of physical assets.

Creative solutions for audit evidence

COVID-19 restrictions altered our work methods, but did not change the requirements for assembling audit evidence. We needed to find creative means to safely collect the relevant information. Creativity was particularly important for the observation of clients’ physical inventory counts at year-end. When public health restrictions made it impossible for an audit engagement team member to be physically present on site, it was sometimes possible to use live streaming technology such as Zoom or Microsoft Teams to observe the client counting the physical inventory and to perform audit test counts.

Another option involved the auditor observing the inventory at a later date when it was possible to be physically present at the client location. We could then “roll back” the inventory balance from the date of the physical observation to the balance sheet date by reviewing interim transactions and performing detail testing on those transactions as necessary. However, the rollback approach is only appropriate if the auditor determines the client has appropriate internal controls for the inventory transactions to be reliable.

Streaming to locate the documents

Live streaming technology can also be used in the gathering of other audit evidence. We encountered one such application involving a small non-profit organization whose personnel were prohibited by the landlord from physically accessing their leased office space. All of the organization’s hard copy transaction receipts and other supporting documentation were held at that office.

Our audit team used statistical sampling to randomly identify transactions for testing. But to complete the work, we needed to access paper debit card receipts as supporting documentation. Our client used live streaming technology to direct the landlord in locating the requested supporting documentation and making copies to be sent to the audit team. It wasn’t fast or seamless, but the creative workaround allowed the work to be completed safely and in compliance with public health mandates.

Learning from experience

As we move into 2021, we will be able to apply the many lessons learned throughout 2020 in performing our audit engagements. We are confident we can appropriately modify our approaches when necessary while adhering to applicable professional standards and continue to provide top-notch service to our clients.

If we can assist with your audit requirements or provide guidance on achieving relevant audit and assurance audit objectives, please contact us.

Jeff Dalrymple, CPA
Bland Garvey, PC
2600 N. Central Expy.
Suite 550
Richardson, TX 75080

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