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Auditing

Remote Auditing During Pandemic: Zoom and Drones

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Soyoung Ho

Companies’ independent auditors seem to be for the most part weathering the COVID-19 storm relatively well, thanks to videoconference technology such as Zoom or drones with cameras.

As part of authorities’ efforts to slow the spread of the novel coronavirus, people have been ordered to stay at and work from home in most states, with only a few states slowly opening parts of their economy as of late April 2020. This meant that employees and executives at public and private companies have been working from home and so have their independent auditors.

Wesley Bricker, a former SEC chief accountant who is currently Vice Chair, U.S. and Mexico Assurance Leader with PricewaterhouseCoopers LLP, said his firm has been “navigating with great confidence” as it has beefed up its technology and employees’ skills over the years to deliver its work digitally.

Further, PwC is continuing to reimagine the audit, Bricker said.

“What does that mean?” he said. “That means using our technology and our tools to look at larger populations, for example, to identify anomalies, to hone in on things of significance in the context of the audit.” Bricker added that PwC has been able to meet every audit deadline.

Julie Bell Lindsay, executive director of the Center for Audit Quality, an affiliate of the AICPA that represents the auditing profession, agrees that COVID-19 has not had a huge impact on the ability for auditors to work effectively so far.

“The audit profession is largely already built to adjust to the way in which we are operating” with technology, Lindsay said. “I would say that audit firms are quickly adapted to this new normal that we are in.”

There has also not been a big impact on the auditor’s ability to carry out procedures—if they need to be on site— because of the timing of the COVID-19 outbreak and when the social distancing measures went into effect, which was around in mid-March in the U.S.

Most companies have December 31 fiscal-year end. This means that audits were done. Auditors are now reviewing first quarter results, but they do not carry out the same rigorous procedures used for full year-end results. They largely do reviews of quarterly reports. However, there are a handful of companies that have fiscal years that end in March or later.

Challenges and Risk of Remote Auditing

There are still challenges since some audit procedures are better done in person or on site.

AICPA’s Chief Auditor Bob Dohrer said auditors have not previously faced this type of situation where everything must be done remotely. The AICPA’s Auditing Standards Board writes private company audit standards.

Dohrer touched upon three aspects of audit that are best done in person.

One is understanding an audit client’s internal control process. He said it is a critical component in the risk assessment process in planning an audit.

“So, the first thing that’s been a challenge is understanding that the way that transactions are being processed with client employees [who] work remotely is much different than the auditor has been used to in the past historically with the same client,” he said. “There is a big uphill kind of challenge of obtaining a new understanding of how things are done and certainly, by having a client workforce that is working remotely, it brings into a spectrum a need for different types of control and things like that.”

Then, the auditor needs to be able to determine whether the controls were adequately designed, put in place, and have them operate effectively.

“That’s a little bit difficult,” Dohrer said. “If there had to have the kind of controls that you need to observe the control it operates, that’s been a challenge.”

Moreover, auditors that have historically relied on the effectiveness of client’s controls and testing of controls. But during a pandemic, auditors can not do so as much.

The second area that the AICPA has gotten a lot of questions from private company auditors has been on the inquiries the auditor in person is required to make of management and those charged with governance with respect to fraud.

“The auditing standard we have on fraud, you know, states that generally is most effective when the inquiry is done in person,” Dohrer explained. “And the reason for that is because it allows for the auditor to read the body language, judge the dynamics in a room if there is more than one person involved and that sort of thing. So, one of the aspects that we’ve been trying to help auditors in that regard is understanding some of the technologies that might be able to use today in that environment where you can make those inquiries remotely but still have the opportunity to videoconference to be able to read body language.”

How to Check Inventory?

The most challenging issue for the auditor in a pandemic environment is perhaps checking a client’s inventory. The auditing standard says the auditor needs to obtain sufficient, appropriate audit evidence that the inventory exists and that it is in good condition, Dohrer explained.

Auditors usually look into inventory towards the end of audit, and they would go to the location of where the inventory is and observe the client’s counting process and do their own test counts and check against the inventory records.

With COVID-19 social distancing rules and stay at home orders, not only would auditors not be able to travel but clients’ employees also might not be there physically to perform the counts.

“We’ve been providing some guidance to auditors on different alternatives; they may be able to use video capabilities,” he said. They can also use cameras that have drones to do remote inventory observations.

“Many warehouse locations have security cameras stations throughout the warehouse for other reasons,” he added. “Those cameras can actually be utilized to provide a video feed of a counting process or to monitor movement within the warehouse.”

If All Else Fails, Modify Audit Opinion

Dohrer noted that some of the smaller audit firms may not be as well equipped as the bigger firms.

“We certainly recognize that some auditors may not avail themselves of technology,” he said. “So, what we’ve also been saying is that, in this environment before the auditor issues an audit report, they need to comply with all the requirements of the auditing standards. And what our message has been is that the auditing standards very rarely dictate how you obtain evidence, they just dictate what you have to obtain and if you are not able to obtain that evidence, then you should not be issuing an unmodified audit report. We’ve been advising that if you can’t accomplish the requirements remotely, then you know very likely you will have modified reports, scope restrictions, limitations, modifications, that. So yes, it is these techniques may not may very well not be able to accomplish everything.”

 

This article originally appeared in the April 29, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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