By Obinna Chima
The Financial Reporting Council of Nigeria (FRC) has released guidance for external auditors and matters to consider due to the disruptions caused by the COVID-19 pandemic.
The move was initiated in order to maintain high-quality audit in Nigeria.
The agency stated in the guidelines posted on its website at the weekend, that it assessed the impact of COVID-19 on audit of reporting entities in Nigeria and after consultation with key stakeholders, decided to unveil the regulation.
It pointed out that the council, which aligns with all the measures by the federal and state governments as well as relevant agencies in containing the COVID-19, was concerned about the financial health of corporate entities as usually reported in financial statements especially during this difficult period.
“We therefore believe that additional time may be required to document, review audit engagements due to some measures taken by federal and state governments in collaboration with Ministries, Departments and Agencies (MDAs) to contain the scourge of COVID-19.
“The measures include travel bans, quarantines, social distancing, and closures of non-essential services. Undoubtedly, these measures have triggered significant disruptions to businesses worldwide, resulting in an economic slowdown and other economic challenges,” it explained.
Furthermore, the FRC classified the situation into three major audit categories.
This, it listed to include the audit of 2019 financial statements which have been completed, audit opinion issued and report already released to shareholders.
Under this category, it stated that there would be, “No impact of COVID -19. Only accounting issues in first-quarter reports and onwards.
“Audit of 2019 Financial Statements that are still ongoing with respect to reporting periods ended on or before December 31, 2019. “Auditors are required to consider the adequacy of disclosures included in the financial statements as companies are required to disclose the following for each material category of non-adjusting events after their reporting period: the nature of the event; and an estimate of its financial effect, or a statement that such an estimate cannot be made. The FRC considers the impact of COVID-19 outbreak to be material.”
Also, for audit of 2020 financial statements (Accounting periods ending on or after January 1, 2020), the FRC guidance highlighted the implications of the COVID-19 outbreak on audits and auditors in Nigeria and actions to be taken when carrying out audits during the current Covid-19 crisis in areas which included new audit engagement; audit planning, execution and reporting; and assessing the Impact of COVID -19.
Others are events after the reporting date; going concern; and Audit of 2020 financial statements (Audit and Accounting issues).
“It addresses the difficulties audit firms currently face in completing all appropriate audit steps as a result of the lockdown in Nigeria occasioned by the need to contain the spread of COVID-19 which has occasioned delay in the completion of audit and approval of Financial Statements by the Board of reporting entities.
“The guidance directs practitioners to demonstrate flexibility in their work pattern, which includes work from home arrangements, use of video/telephone conferencing, and electronic evidence. However, Auditors should apply alternative procedures if they are still not able to obtain sufficient appropriate audit evidence as a result of differing levels of infrastructure in the country.
“If Auditors are still not able to obtain sufficient appropriate audit evidence, then they should consider modifying the opinion on the financial statements in line with ISA,” it added.
Therefore, it pointed out that the audited financial statements containing the modified opinion must then be brought to the Council’s attention in accordance with the provisions of the FRC Act.
“Where the impact of Covid-19 is, in the auditor’s professional judgment one of the most significant matters having an impact on the audit of the financial statements, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team, then the auditor considers reporting this as a key audit matter for entities mandated to report key audit matters.
“Given the severity of the COVID-19 pandemic and its consequential impacts on employees, mobility, the financial systems, and the economy, it is very likely that auditors may encounter scope limitations or complex auditing and accounting issues which may require audit teams to consider modifications to audit opinions.
“Audit firms’ Quality leaders/engagement partners are encouraged to reach out to the Council if there are any matters, they would require the support or clarification of the Council,” it stated.