Prepared By:

Mohammad Abdur Rahman Jaber

ID-24/202

AUDITING IN NEW
(AB)NORMAL
Table of Contents
Introduction:...............................................................................................................................2
LO1: How Covid-19 Leaving It’s Footprint on the Audit Activities Both in Bangladesh
and All Over the World...........................................................................................................3
LO 2: Identification of the Impacts of Covid-19 on Disclosure of Key Audit Matters of
Audit Report and Audit Opinion............................................................................................6
LO 3: Role of Audit Committee in Identification of Significant Risk Areas Which may
Create Going Concern Problems:...........................................................................................7
LO 4: Use of Technology in Conducting Audit in This Pandemic......................................8
Conclusion:................................................................................................................................9
References................................................................................................................................10
Introduction:
The unexpected-unprecedented current situation caused by the deadly COVID-19, the
pandemic, has disrupted almost all professions and operations across the globe and has forced
them to come to a standstill, accounting as well as auditing is no exception to that. Mandatory
lockdown measures taken by the government to control the spread of this invisible assailant
has brought the situation for the auditors to work remotely from their home. So auditors, can
no longer can travel to their client’s premises and even to their respective offices and have to
work from their home.
This pandemic has started to reveal the lacking of operation-efficiency in previous method of
auditing and uttered the urgency of digitalizing this sector using advanced technology based
tools to enhance the efficiency of the operation ,which in a sense a positive impact of this
situation.
Apart from this, we have seen a number of practical challenges have emerged in this sector.
As from ACCA’s Covid-19 global survey: Inside Business, it revealed that a significant 53%
of respondents working in public practice said they were experiencing pressures completing
client services work, and over a third (36%) said they faced an inability to meet reporting
deadlines - a point recognized in many jurisdictions where reporting deadlines have been
flexed. A quarter said they’re experiencing difficulties in gathering audit evidence, and 27%
said they saw an increased audit risk relating to valuation of assets, completeness of liabilities
or going concern issues.
This paper talks about the challenges emerged in the auditing activities of Bangladesh also in
all over the world, changes in the disclosure requirement of key audit matters of audit report
and audit opinion, what should audit committee do in identifying significant risk areas
relating to the going concern problem and finally the role technology to cope up with this
new (ab)normal.
LO1: How Covid-19 Leaving It’s Footprint on the Audit Activities Both in Bangladesh
and All Over the World
The impact of this pandemic,covid-19,on activities like financial statement reporting and also
audit engagement are much complex and introduced several challenges for stakeholders
connected with these activities like management, government regulators also for auditors. As
currently we are living an unprecedented situation where we cannot actually figure out what
will happen to our economy, future earnings of the company and many other things so
preparation of financial reports and auditing those have become really difficult for us(Global
Economic Crisis Due to Novel Coronavirus (COVID-19): Challenges and Overcome for
Bangladesh Economy, 2020). Here, I’ve discussed some key challenges that have revealed
because of the pandemic and shown how these are creating problems in traditional auditing
activities.
1. Professional Judgment and Professional Skepticism:
The importance of exercising professional skepticism by auditors in the current
pandemic cannot be over-emphasized. There is likely a significant change in the
judgments made by management and the regulatory bodies, in particular in light of the
continually changing environment and in many cases the significant uncertainty
looking forward. It is likely that auditing areas such as going concern, accounting
estimates (e.g., impairment, fair value etc.) and other areas where significant
judgment is involved will be considerably more challenging for auditors. In addition,
auditor’s experts may need to be brought in to support a team which may not have the
experience and competency in an area where professional judgment will need to be
exercised. Many aspects of the audit will be impacted by the Covid-19 pandemic, in
particular those where sound professional judgment is needed. For example,
determining materiality involves the exercise of professional judgment. In some
circumstances, the chosen benchmark previously used to determine materiality may
need to be adjusted for significant changes in the circumstances. It is important for
materiality to be based on metrics that are important to users of the financial
statements (e.g., revenue, pre-tax income), which may differ from metrics used in the
past. A number of financial reporting regulators have acknowledged the uncertainties
being faced by preparers and auditors. For example, the US Securities and Exchange
Commission highlighted that “in many cases actual financial and operational results
may differ substantially from what would now appear to be reasonable estimates(El-
Mousawi and Kanso, 2020). Given the uncertainty in our current business
environment, we would not expect to second guess good faith attempts to provide
investors and other market participants appropriately framed forward-looking
information.”

2. Planning- Risk Identification and Assessment:

The auditor’s risk identification and assessment process is quite repetitive and
dynamic as well. Auditors are required to review risk assessments and modify
responses and further audit procedures, based on audit evidence or new information
obtained. But during this pandemic, auditors need to take certain safeguards in
following aspects:
  Understanding the Entity and its Environment: The auditor’s
understanding of the entity and its environment has likely changed from
previous periods due to the sudden outbreak of Covid-19. There may be
changes to the entity’s objectives, strategy, organizational structure,
governance arrangements and business model and it is important that the
auditor considers how these changes impact the audit. Changes may also be
needed if the auditor has already completed planning and risk assessment
before the onset of the Covid-19 pandemic and may also be necessary during
the audit as the environment continues to evolve.
 Setting Materiality: The auditor may need to re-consider the impact of any
changes due to the pandemic on materiality, including the basis on which
materiality is determined in accordance with ISA. The auditor may also need
to review materiality for the financial statements as a whole during the audit in
the event of becoming aware of information that would have caused the
auditor to have determined a different amount initially, which could occur as
the entity’s circumstances change. As materiality is adjusted for the current
circumstances, consideration will also be needed about the impact of
previously unadjusted differences which may now become material and need
to be adjusted for.
 Control: An understanding of the entity’s system of internal controls relevant
to the audit assists when identifying potential misstatements. This
understanding is required even when auditors do not plan to rely on the
operating effectiveness of controls because it helps identify where possible
misstatements could occur. In the current environment, it is likely that there
have been changes to various components of the system of internal control,
and a thorough understanding of what is changed will assist the auditor in their
risk identification and assessment process. In particular, the control
environment will likely be different—many organizations have had to change
the way they operate and so would have had to change their oversight
processes and how controls operate. These changes may lead to additional
risks of material misstatement.

3. Audit Evidence:
ISA requires that, auditor should design and perform audit procedures in order to
obtain sufficient audit evidence to be able to draw reasonable conclusions based on
which the opinion is formed. Now, Covid-19 has resulted in many challenges for
auditors in obtaining sufficient appropriate audit evidence. For example, travel
restrictions may have impacted physical access (e.g. attending inventory counts), the
ability to obtain original documents (e.g. inspection of records for evidence of
authorization as a test of controls) and availability of client staff. If the auditor cannot
obtain evidence in the way that the evidence was obtained before, consideration
should be given to alternative procedures. When the auditor is unable to obtain
sufficient appropriate audit evidence that is necessary for the auditor to be able to
 conclude, consideration will need to be given to the impact on the auditor’s report,
including whether a modified opinion is needed.

4. Going Concern:
Going concern assessment often involves complex analyses including significant
judgment relating to future cash flow .Primarily, management is responsible for
assessing company’s ability to continue as a going concern and any necessary
disclosures required by applicable financial reporting framework. The current
circumstances also make it more difficult for auditors to reliably audit management’s
assessment of going concern in light of the many and significant uncertainties. In the
event that conditions are identified that may cast significant doubt on the company’s
ability to continue as a going concern it is likely that auditors may need to perform
the additional procedures, and consider the impact of their findings on the auditor’s
report. The IAASB has published a Staff Audit Practice Alert (the IAASB Staff Alert
on Going Concern) to highlight issues and challenges for auditors relating to going
concern in the current environment, including the periods that need to be considered
by the auditor, as well as the impact on the auditor’s report of the findings from their
procedures. It should be highlighted that the IAASB Staff Alert on Going Concern
notes “While the impact of the COVID-19 pandemic may amplify events or
conditions giving rise to modifications to the auditor’s report or opinion, it does not in
itself mean a modification is inevitable-this will depend on the facts and
circumstances of each entity.” For that reason, it is important that the auditor works
through the procedures in ISA 570 (Revised) regardless of the expected outcome.

5. Audit Reporting:
We all know that the primary reason of the audit is to obtain reasonable assurance that
the financial statements have been prepared, in all material respects, in accordance
with the applicable financial reporting framework. But unfortunately this pandemic
may result in a rise of certain modifications relating to the auditor’s opinion because
of certain issues related to material misstatement of the financial statements or
more circumstances where there is an inability to obtain sufficient appropriate audit
evidence(Klein, 2020). Similarly, there could arguably be more ‘modified’ audit
opinions and more ‘material uncertainties’ highlighted in audit reports in relation to
going concern, and more ‘emphasis of matter paragraphs’ for other Covid-19
related disclosures.

6. Subsequent Events:
 Management’s Responsibilities: Management exercises judgment in
determining whether events that took place after the end of the reporting
period are adjusting or non-adjusting events. This will be highly dependent on
the reporting date and the facts and circumstances of the entity. If management
concludes the impact of non-adjusting events are material, the company is
required to disclose the nature of the event and an estimate of its financial
effect. If it cannot be reliably quantitively estimated, there still needs to be a
 qualitative disclosure, including a statement that it is not possible to estimate
the effect. Examples of non-adjusting events that would generally be disclosed
in the financial statements include breaches of loan covenants, management
plans to discontinue an operation, after the reporting period.
 Auditor’s Responsibilities: The IAASB Staff Alert Subsequent Events in
the Current Evolving Environment―Audit Considerations for the Impact
of COVID-19 notes that auditors will likely require a greater focus on events
occurring the date of the financial statements and the date of the auditor’s
report (i.e. subsequent events) and the effect, if any, on the entity’s financial
statements. As some jurisdictions have granted extensions for filing financial
statements, auditors may be required to undertake procedures to cover the
longer period to the date of the auditor’s report.

LO 2: Identification of the Impacts of Covid-19 on Disclosure of Key Audit Matters of

Audit Report and Audit Opinion
According to the ISA, Communicating Key Audit Matters in the Independent Auditor’s
Report, deals with the auditor’s responsibility to communicate matters of most significance in
the audit of the financial statements of listed entities or other entities for which law or
regulation requires communication of key audit matters. In other circumstances, auditors may
also decide to communicate key audit matters. Additional focus may be needed on the key
audit matters reported in the auditor’s report because of the changing circumstances due to
Covid-19. The areas that were significant in the KAMs in a prior year may require expansion
to include consideration for the current year audit response in that area for Covid-19, as well
as consideration of other KAM arising from Covid-19 impacts(Broad disclosure impacts of
COVID-19, 2020). So the disclosure required are:
• Write-down of inventories to net realizable value
• Recognition of a loss from the impairment of financial assets, property, plant and
equipment, right-of-use assets, intangible assets, contract assets, or other assets
• Disposal of property, plant and equipment
• Changes in the fair value of investment properties
• Changes in the business or economic circumstances that affect the fair value of the entity’s
financial assets and financial liabilities (regardless of whether they are recognized at fair
value or amortized cost)
• Any default or breach of a loan agreement that has not been remedied on, or before, the
end of the interim reporting period
• Changes in the classification of financial assets as a result of a change in the purpose or use
of those assets
• Employee termination costs
• Recognition of onerous contracts
• Change in contingent liabilities or assets
Now again in case of going concern, If substantial doubt is raised about the company’s
ability to continue as a going concern, the following disclosure is required in the financial
statements:
 Conditions and events that raised substantial doubt;
 Management’s evaluation of the significance of those conditions or events in relation
to the company’s ability to meet its obligations; and
 Management’s plans that alleviated (i.e. eliminated) or are intended to alleviate (i.e.
have not yet eliminated) the substantial doubt.
If substantial doubt exists, this fact should be explicitly disclosed. If substantial doubt does
not exist, we believe the term ‘substantial doubt’ need not be used. The company can apply
judgment as to the appropriate placement of the required information in the notes. While the
look-forward period is one year, it may be appropriate to provide additional disclosure about
the potential effect of known conditions and events that may occur beyond one year. Those
known conditions and events are often required to be disclosed in accordance with other US
GAAP requirements (e.g. loss contingencies, risk and uncertainties or SEC rules and
regulations.

LO 3: Role of Audit Committee in Identification of Significant Risk Areas Which may

Create Going Concern Problems:
A going concern statement in the company’s footnote disclosures is required if management
determines that substantial doubt about the company’s ability to continue as a going concern
exists, and that doubt cannot be alleviated by management with operational and/or financial
mitigation actions. Now, as a part of the board the audit committee has to look for answers
for following questions in order to assess the risk of liquidation of the business(COVID-19:
The role of the board when the company’s ability to continue as a going concern may be in
doubt, 2020), they are:
 If management has determined that there is substantial doubt about the company’s
ability to continue as a going concern, what are the range of potential impacts on the
company? What are the conditions causing this conclusion? What analysis can be
shared so that the board can understand the significance of the conditions?
 How comfortable is the board with the level of conservatism in the analysis of the
conditions and events that raised the substantial doubt? Has the board heard directly
from outside advisors (auditors, bankers, etc.) regarding their insights about the
situation?
 What actions are the company considering to mitigate the adverse conditions that
could lead or could have led to substantial doubt? What are the “sacred cows” that are
not being considered and why? Will those actions damage relationships with
customers and suppliers?
 What scenario planning has the company done and how comfortable is the board with
the key assumptions in those plans? How confident is management with the accuracy
 of the underlying data and methodologies used to create those scenarios and
forecasts? Does scenario planning sufficiently address uncertainties outside of the
company’s control, such as a second or third wave of infections?
 What is the status of the company’s financial relationships with banks? What
conditions are the bankers seeking to waive covenant violations or extend more
credit?
 Are there significant shareholders who are willing to infuse more capital? What form
of capital and return on that capital would those shareholders likely require?
 What accounting principles and financial reporting standards govern in these
circumstances? What does management plan to disclose publicly—in a press release,
in the risk factors, in MD&A and in the financial statements? What is the impact on
the external auditor’s report?
 Does the management team have the right experience and bandwidth or is there a
need for supplemental resources?
 Has the board addressed its litigation risks, and does it understand the insurance
coverage and arrangements required to indemnify individual board members? Does
the board need to hire independent advisors?
 What is the company’s plan for possible operational or financial restructuring in the
near future? When is the right time to prep the board for their role in that effort?

LO 4: Use of Technology in Conducting Audit in This Pandemic

As COVID-19, the pandemic, has been forcing several businesses to change their way of
operation because of health issue, here technology is playing a significant role in making the
things done. Similarly there are certain tech based solution for the auditors to remain at the
top their game. We’ve seen that, clients are facing a myriad of challenges to remain in
business and prepare financial statements given the impact of COVID-19, auditors also have
practical difficulties, ranging from accessing client information to additional time needed to
assess the impact of COVID-19 on asset impairments, uncertainties related to going concern
and subsequent events disclosures. The ability of entities to obtain data essential to the
preparation of financial statements is considerably affected, particularly for those with
significant operations in countries severely affected by COVID-19. This will result in delays
in receiving financial data from subsidiaries or components for group audits and will be
further exacerbated as more and more audit firm employee’s shift to working remotely. So to
cope up with this situation auditors are already using various information and communication
technologies like(Castka, Searcy and Fischer, 2020): spreadsheets for checking samples,
macros for running analyses and emails to engage with clients. However, these technologies
are proving assistance to them at a limited extent, in order to fully transition to remote work
existing technologies should be enhanced with additional technologies that facilitate remote
communication within the audit team, information gathering, reconciliation of transactions,
and financial analysis and interpretation. Here we have discussed about certain tools which
help the audit team to communicate effectively in real time even working in a remote
locations(Eljialy, 2015). They are:
  CaseWare, which allows for and supports cloud accounting, data import, data
mapping, data validation, AI-based testing, AI-based analysis, automated preparation
of financial statements, data visualisation and compliance.
 Financials Checker, which automates the internal checking of financial statements,
annotating the primary financial statements to the notes in under 30 minutes, which
manually, can take up to a day in some instances. Financials Checker is not limited to
financial statements and can be used on any report that contains numbers within tables
and internal referencing.
 Inflo, this combines digital client collaboration, a suite of advanced analytics and the
direct extraction of data from 100 per cent of client accounting systems
 Microsoft Power BI, which is an enhanced Excel capability with hundreds of data
visualizations, built-in AI capabilities, tight Excel integration, and prebuilt and
custom data connectors.
 MindBridge, AI Auditor is an AI-powered risk assessment platform able to analyze
100 per cent of transactions. Ai Auditor identifies unusual transactions by looking at
transaction flows between all accounts and evaluates them against AI and machine
learning-based controls.

Conclusion:
As far we have seen that, this pandemic has created a mass all over the world including
auditing activities. It has forced to rethink the issues like professional judgments, disclosing
the key matters for the better understanding of the users of financial statements, identifying
risks and assessing those, look for the firm’s ability to operate in the long term and so on. But
on the other hand it has shown the problems in our traditional auditing method and made us
feel the importance of implementing technology in this sector to cope up with this new
normal also for any uncertain situation. So, we should focus on the emerging risks due to this
virus and should implement the above tools in our operation for a better result.
References
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Castka, P., Searcy, C. and Fischer, S., 2020. Technology-enhanced Auditing in Voluntary
Sustainability Standards: The Impact of COVID-19. Sustainability, 12(11), p.4740.
Eljialy, A., 2015. Study of database auditing tools accuracy. International Journal of
Auditing Technology, 2(4), p.289.
El-Mousawi, H. and Kanso, H., 2020. Impact of COVID-19 Outbreak on Financial Reporting
in the Light of the International Financial Reporting Standards (IFRS) (An Empirical
Study). Research in Economics and Management, 5(2), p.p21.
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Novel Coronavirus (COVID-19): Challenges and Overcome for Bangladesh Economy.
Klein, S., 2020. Assessment of the CDC’s New COVID-19 Data Reporting. Coronavirus
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