Auditing in Pandemic and Post Pandemic era
has led to a lot of new developments and techniques in Auditing in the world as we know it today.
Auditors have begun to embrace the new normal to cope with the health risks emanating from exposure to COVID.
The various government’s extant rules and COVID protocols leading to lockdown of businesses and social distancing measures has led to crippling activities of various companies and businesses, while many other new companies and businesses especially in the technology space has sprung up given the prevailing opportunities arising from the lockdowns.
Hence, opportunities now abound in the contactless space, where technology has been the main driver of our economy.
Now, virtually all aspects of the economy ranging from Health, Education, Entertainment, Finance and even Electioneering has found its way in modern technological advancements through the use of various mobile Applications, FINTECHs and other App platforms occasioned by the urgency to meet the needs of customers in the pandemic era.
Since we are now in a modern world where technology has continued to prevail, auditing as we know it has to evolve with the changing times.
This article helps to shed light on the aspects of Auditing affected most by these changes and how Auditors can navigate some of the challenges thrown up by the pandemic.
Online Audit has different imperatives for internal and external auditors. With the advancement in technology (Skype, Teams and Cisco Webex) videoconferencing, internal and external audit can now be conducted without stress.
This has also led to reduction in travel expense, increased reliance on technology and use of Audit software for data mining and complex computations. The drawbacks of online Audit are; it can be expensive to set up or acquire, some technical knowledge is required, network downtime and compatibility with the entity’s software.
One of the core challenges of Auditing is the inability to carry out physical test of inventory or on-site count of stock commodities such as cash, financial instruments (stock of cards, tokens, Cheques) and other items. It is important for auditors to recognize that there are alternatives to physical inspections.
For any organization or business where inventory considered very material to the business, the existence of that inventory is going to be a relevant assertion.
And in the vast majority of cases, historically, it has just been generally accepted that the way that an auditor can test the existence of that inventory is to physically observe its counting and that may entails the use of the Roll forward and roll back technique.
The roll forward and roll back technique entails that Auditors can work with the client/Auditee and think whether it would be possible and realistic to postpone the inventory counting and observation to a later date when restrictions are a bit relaxed and/or convenient for both parties.
The auditor could count inventory and observe it at that point and then perform additional testing on the sales/withdrawals subsequent to the cutoff date or year-end as well as subsequent deposits and reversals. You could effectively roll back the inventory to the year end, even if it was counted subsequent to year end.
Actually, this is not an extraordinarily thing for auditors to do, especially in situations where the auditor was engaged to perform an audit after the year end or after the inventory had been counted in the absence of the auditor.
This process simply involves carrying out computations either by adding withdrawals/sales and deducting deposits/purchases to arrive at the closing balance of the inventory counted.
The other more traditional alternative procedure can be performed if the client is using a cycle count procedure and a perpetual inventory system (i.e., automated process for inventory management). A cycle count procedure is where the auditee/client essentially has controls in place where on a periodic basis, e.g, monthly, quarterly, they will conduct their own test counts of just a portion of their inventory.
And then they go back to their perpetual system and prepare the counts, make corrections. Hence, with cycle counting, the client/auditees don’t perform one huge year-end, wall-to-wall count in most cases. If the auditor had been testing those controls and relying on those controls to establish the existence of inventory, the auditor may be able to go back to the last prior cycle count that was taken and then be able to rol
forward to year end.
Again using sales/withdrawal transactions and purchase/Deposit transactions and testing those during that interim period. Therefore, the roll forward and roll back are alternative approach that could be adopted
The Video Observation.
This is another technique for attending physical inventory counting. One question for us to answer is “Is it even permissible under the auditing standards to not physically count inventory in person”?
One aspect is that International Standard on Auditing 501 Paragraphs 4 through 11 reference the requirement to attend the physical inventory counting unless it is impracticable to do so.
There are actually some application paragraphs (Paragraph. A34 of AU-C ISA 501) that indicate that one circumstance that may make a physical observation impracticable is if the inventory is held in a location that may pose threats to the auditor’s safety.
The overriding consideration when using remote video is that the auditor needs to have a pretty good feel for the authenticity of the video feed.
If it’s a live situation where perhaps someone from the client is on-site and can send a live video feed back to the auditor for them to watch, that makes it easier to determine authenticity.
If you’re using, for example, Skype or Zoom and somebody is actually walking around to the inventory and counting it in response to verbal commands of the auditor with an interactive dialogue, then you can be pretty comfortable of the authenticity of the procedure.
The need for Auditors to meet up with deadlines on Audit year end deliverables has also skyrocketed because owners of businesses need to meet up with regulatory deadlines, Tax filingsas well as position their businesses for more opportunities after accounting for all losses occasioned by the pandemic.
Therefore, the increasing demand for Auditors to meet up with the pre-pandemic Audit cycle and financial year end reports. It is on this premise that Auditors will need to evolve existing practice in our c forward to year end. Again using sales/withdrawal transactions and purchase/Deposit transactions and testing those during that interim period.
Therefore, the roll forward and roll back are alternative approach that could be adopted
The Video Observation. This is another technique for attending physical inventory counting.
One question for us to answer is “Is it even permissible under the auditing standards to not physically count inventory in person”? One aspect is that
International Standard on Auditing 501 Paragraphs 4 through 11 reference the requirement to attend the physical inventory counting unless it is impracticable to do so. There are actually some application paragraphs (Paragraph. A34 of AU-C ISA 501) that indicate that one circumstance that may make a physical observation impracticable is if the inventory is held in a location that may pose threats to the auditor’s safety.
The overriding consideration when using remote video is that the auditor needs to have a pretty good feel for the authenticity of the video feed.
If it’s a live situation where perhaps someone from the client is on-site and can send a live video feed back to the auditor for them to watch, that makes it easier to determine authenticity. If you’re using, for example, Skype or Zoom and somebody is actually walking around to the inventory and counting it in response to verbal commands of the auditor with an interactive dialogue, then you can be pretty comfortable of the authenticity of the procedure.
The need for Auditors to meet up with deadlines on Audit year end deliverables has also skyrocketed because owners of businesses need to meet up with regulatory deadlines, Tax filingsas well as position their businesses for more opportunities after accounting for all losses occasioned by the pandemic.
Therefore, the increasing demand for Auditors to meet up with the pre-pandemic Audit cycle and financial year end reports. It is on this premise that Auditors will need to evolve existing practice in our changing environment.
