FRC COVID-19 Bulletin updated to include gathering evidence through remote means
The Financial Reporting Council (FRC) issued an update on 9 April 2020 to its COVID-19 Bulletin for auditors that was originally issued on 26 March 2020. The update relates to gathering evidence through remote means.
The FRC recognises that restrictions on travel, movement and visiting company sites may mean that substantive testing or controls testing cannot currently be carried out as planned by the auditor. Auditors therefore need to consider whether sufficient appropriate audit evidence can be obtained by different means, and this may well require the use of procedures not typically used by audit firms, including through greater use of technology. Auditors will also need to understand, in modifying their audit approach, how audited entities are changing their operations and control environment and what this does to available evidence.
Where audit evidence would normally be gathered through physical means (observation or inspection), the current restrictions mean that these approaches are no longer feasible. However, the auditor can instead consider additional audit procedures that could be performed to enable sufficient and appropriate evidence to be obtained. Determining whether additional or alternative procedures are necessary and, if so, which, needs to be carefully considered by the auditor on a case-by-case basis and will depend on the applicable facts and circumstances. It is a judgment call the auditor needs to make, considering explicitly whether evidence obtained electronically is reliable in the circumstances, and is not subject to manipulation.
If auditors are seeking to gather evidence through greater use of technology, including through the use of secure third-party systems to provide confirmations, or by the provision of evidence to the auditor through secure live streaming or screen sharing, then the auditor considers what factors will allow them to evaluate the appropriateness of that evidence. This assessment includes the risk that evidence might be manipulated, and how this risk can be mitigated.
Technology is widely used in business, and by auditors. It is not possible, and would not be desirable, to compile an exhaustive list of procedures, and any procedure is not guaranteed to provide sufficient, appropriate evidence. However, innovation, a careful assessment of each source of evidence, and clearly recording the judgments taken and the rationale for them will enable auditors to find new ways of delivering their work.
The COVID-19 crisis also means that there may be situations where there is a greater risk of fraud. In these situations, as the control environment may be operating differently to expectations, e.g. impacting on segregation of duties, the auditor considers the need for additional procedures to address the risk.
ICAS Members with queries on any technical matter relating to the current situation are advised to submit these as normal via the online portal at icas.com. If it is then deemed necessary, this might lead to a telephone discussion at a mutually convenient time with an appropriate member of the ICAS team.