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Audit during the pandemic – how has it changed?

The epidemic has had a significant impact on the economy and the functioning of companies, therefore its effects are also visible in the accounting processes of companies and are reflected in financial statements. This, in turn, is of great importance to the auditors, who are tasked with auditing the financial statements in this extraordinary time.
There are many examples of how the current situation has impacted accounting issues and the way financial information is presented in the company’s reports. For example, this includes recognition of various forms of governmental support. However, the most important thing is, of course, a correct assessment by the Management Board of business continuity and its appropriate presentation in the financial statements.
The expert auditor’s task is to analyze the assessment made by the Management Board and determine whether it covers all the risks related to the impact of the pandemic on the company’s operations. Questions might be asked whether there are any factors that may change this plan, such as the possibility of a re-lockdown, insolvency of key recipients, tightening of the credit policy by financial institutions, difficulties in accessing the supply chain of services, materials or goods, and many more.
I think that the role of the auditor, which includes the said analysis of the Management Board’s statement, has become much more important in these difficult times. Therefore, the importance of auditors’ judgments is, in my opinion, growing.

New rules of auditing during the pandemic

A big challenge we have faced is the organization of experts’ observation of stock-taking. There was a situation in which the customer did not want to let a third-party into the warehouse for health reasons. If as auditors we know the client well, we observe the stock-taking process every year, and know how the internal controls work in the company, we can rely on remote participation in such a process using a camera. But it is certainly difficult to do when we are auditing a client for the first time.
If such a situation occurs, in my opinion, we should aim at live observation. Try to establish some way in which the contact between the person from the audit company and the warehouse employees will be as limited as possible. Certainly the experts have an opportunity to get creative.
The epidemic has changed the way many people live and work, and this also applies to expert auditors. The changes that had to be made in a rush back in March 2020 concerned the issues of organization, technology and communication.
It was necessary to re-establish the rules of operation regarding both the work of the audit teams in order to make their communication effective and enable an efficient conduct of the audit project (as if it was performed stationary), as well as the work with their clients – audits had to go into remote mode. In particular, it concerned the establishment of a new work schedule or a change in the work schedule, which resulted from the fact that clients were not always able to focus on assisting the auditor at the scheduled time. The expert had to be and still has to be more flexible with the client.

A turn to a digitized audit - what can auditors gain?

Remote work forces expert auditors to be more motivated in relation to themselves and their younger colleagues, so that despite the lack of direct, physical control, they can effectively use the work time and provide audit documentation at a high quality level. The time devoted to the so-called quality checks is now definitely extended.
Auditors and customers had to quickly learn how to use the available tools for remote communication, as well as the use of cloud solutions, virtual disks or document signing applications, such as Autenti. Anyway, I believe that the revolution in the use of technology is still ahead of us, and the pandemic has only opened our eyes to these issues and will probably slightly accelerate some processes of digitalization of the financial audit. I am in the group of statutory auditors who see these changes as an opportunity, not a threat.
First of all, the epidemic will accelerate the transition of our procedures from traditional book and document research to research based on the analysis of data from information systems. Perhaps, in the future even the use of artificial intelligence for bookkeeping could be a thing, and being a long and monotonous activity that takes up a lot of valuable time, bookkeeping will ease up with new technologies.
Certainly, when working remotely and on IT systems, clients will eventually have to start letting auditors to their accounting or ERP systems. This is related with two issues: first, the auditor will have to learn the handling of various IT systems used in companies, and in the future, they will also have to familiarize themselves with various, more sophisticated data analysis tools. Secondly, our clients will have to take care of data security issues so that, by accident, as a result of an audit, sensitive data does not fall into the wrong hands without the auditor’s or the client’s knowledge.

What other changes will the pandemic bring?

Certainly, this kind of digitalization is also a challenge for authorities that set standards. I believe that sooner or later, research using data analysis tools will have to be regulated by appropriate standards.
In my opinion, the pandemic will increase the prices of expert auditors’ services, which is associated with an increase in investment outlays on technology or training, but also with an increase in the so-called professional skepticism and time-consuming procedures related to, for example, the assessment of the Management Board’s analysis regarding business continuity.
Obviously, the rise in prices is influenced not only by the pandemic, but also by the increase in wages and salaries not related to it, or in the supervision fees. The increase in salaries is influenced by the fact that fewer and fewer people want to work in auditing, therefore audit companies have to adapt to the expectations of candidates, and these have been growing for several years
Therefore, audit firms will have to incur increasing costs, be it technology or employee training, or meeting of the changed standards of practicing the profession. This will further favor the consolidation of the market and the association of smaller audit firms in the network, such as Polska Grupa Audytorska. The networks of audit firms, in addition to substantive or human resources support, can also help reduce the operating costs of an audit firm.
About the author: Bartłomiej Kurylak is an expert auditor, partner and co-founder of the network of audit companies Polska Grupa Audytorska.

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