As an accounting employee at a company that had a 2020 fiscal year end, your organization may be audited this year. If so, there are certain areas that may provide increased risks of material misstatement for the audit. Resolving potential issues in these areas can contribute to successful audit results.
Be sure you pay attention to these three areas if you prepare for an audit in 2021.
The auditor uses their professional judgment to evaluate the design and implementation of the controls relevant to your company’s audit. This includes determining what could go wrong from a financial reporting perspective and whether specific controls can reduce these risks. When stay-at-home orders were issued during the pandemic, your company’s controls may have dramatically changed to accommodate remote workforces and process flows. In this case, the risk of breakdowns in internal control increased. As a result, the auditor may evaluate the design and implementation of relevant controls that were in place both before the pandemic and after it started. The results of these two evaluations will affect the remainder of the audit. For instance, the auditor previously may have relied on the operating effectiveness of a certain control that stopped operating during the pandemic. This would require the auditor to revise the nature, timing, and extent of substantive testing to receive sufficient audit evidence. Be prepared for this possibility.
Potential breakdowns in internal control may increase the risk of fraud. For instance, because business models are being challenged, executives tend to be more focused on operations than compliance and fighting fraud. Also, employees dealing with government officials in higher risk jurisdictions regarding regulatory approvals, key IP issues, supply chain, and financial aid may not be trained for such interactions. Additionally, onboarding third parties that are not fully vetted and screened can result in working with questionable or restricted parties.
Noncompliance with Laws and Regulations
If your company accepted federal economic stimulus funding for COVID-19 relief, the risk of noncompliance with laws and regulations may have increased. Along with the short timeframe to submit an application, the complexity of the regulations to ensure proper use of the funding increased the risk of noncompliance. As a result, management must prepare to show their response and mitigation strategy to avoid risks that could materially affect your company’s financial statements.
Get Help Preparing for an Audit
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