Impact of Coronavirus Outbreak on Auditing Industry
The coronavirus (COVID-19) outbreak has brought disruptions in the global markets and spooked oil as well as non-oil sectors more particularly Tourism, trade, hospitality, retail, logistic and airlines across the world. The crisis has evolved into a macroeconomic issue in no time and it is time to analyze the impact of the Covid-19 on auditing industry. External auditors across the world including in the UAE have reported that many of their clients have forbidden them to visit their offices and asked them to opt for the work-from-remote office method.
Top Risks Auditors Need to Address in the Wake of the Corona Virus Outbreak
The auditors need to be aware of the following risks even though uncertainty prevails over gauging the potential impact and scope of the Corona epidemic:
1. Valuation of Financial Assets
Coronavirus outbreak can put the measurement of financial assets at risk. Audit firms in Dubai & UAE and the companies need to consider the potential for impairment as financial assets reported at fair value on the balance sheet may lead to realized and unrealized losses.
2. Credit and Liquidity Risks
It is too early to gauge the potential damage Coronavirus can cause to the financial health of the clients or the customer of the clients. However, if the duration of the epidemic prolongs, the client may be facing financial difficulty leading to more credit risks. Auditors in Dubai & UAE need to consider that if the impact of the Coronavirus is going to be heavy, the client may be faced with bad debt and cash flows from operations may be affected.
3. Subsequent Events
Auditors need to ensure that their clients who have major operations such as factories or business in China include subsequent event disclosures in their annual and interim financial statements. This is because the events related to the spread of coronavirus are evolving daily.
4. Delays in Audit Reports
If the impact of the outbreak continues the risk of delay in submitting the audit reports can be expected. More travel restrictions may arise, potentially disrupting the works of auditors. In the UAE, companies that are required to submit an audit report might find it tough if the Corona outbreak persists. Auditing will be in peril if alternative measures like temporary tweaks on guidelines are not initiated. In HK and US, stock exchange regulator and accounting board have exempted auditors to visit the client’s place and allowed them to carry out an audit from the office.
On 12th March 2020, UAE Central Bank advised its employees to work remotely.
Role of Internal Auditors in Helping Companies Amid Corona Epidemic
Internal auditors in UAE can work closely with the companies to know whether the management has detected the possible risks and potential impacts of Coronavirus on the business. Ideally, internal auditors need to act as the trusted partner of the companies and they should be aware of the business to anticipate risks like Coronavirus.
The Institute of Internal Auditors (IIA) has released a set of questions that the auditors need to ask the companies regarding their preparedness for the Corona Virus impact. The auditors should ask about:
- When was the last time the company’s resiliency plans were reviewed by stakeholders?
- When the last time the company’s plans were tested?
- Do the current plans address natural disasters, pandemics that could affect the facility, employees, suppliers, and customers?
- Is the company capable of performing manual versions of business-critical automated activities?
- Are the employees and business associates trained to face an epidemic like Corona Virus?
Based on these questions, the internal auditors can ask the companies about their plans to contain the outbreak because an epidemic like Corona tests the risk management capabilities of businesses.
Internal Auditors can take the following measures to address Corona Outbreak:
1. Assess Business Continuity Plans
Every company needs to ensure that they have effective crisis management and business continuity plan to manage a pandemic like Corona. Auditors can check the robustness of these plans and deliver appropriate advice for the management.
2. Advice on Cyber Risks
Companies may be faced with cyber risks in the wake of the Coronavirus outbreak. The Institute of Internal Auditors (IIA) has recently issued a warning to auditors that their organizations could befall victim to cyber-attacks that exploit the current situation of extreme panic. As per IIA Bulletin, some companies in Japan have fallen prey to malware in the form of emails pretending to be giving information about how to deal with the Corona Virus outbreak.
How Jitendra Chartered Accountants (JCA) is dealing with the situation?
Auditors in Jitendra Chartered Accountants (JCA) are well aware of the potential risk and effect on the businesses in UAE. JCA is guiding its clients if the assets and liabilities require any adjustments within the books of accounts. Companies are advised to disclose the information related to assets and liabilities that are being affected that may require adjustments and estimations. That way, financial statements provide the true and fair picture of the company’s financial health and reflect the effects of coronavirus on businesses financially.