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Journal number 1 ∘ Teona Makalatia
Implications of diseases on financial reporting and auditing

Expanded Summaryt 

In the era of global warming, the outbreaks of infectious diseases are expected to increase. The latest coronavirus pandemic, or COVID-19, showed us a lot. Regarding the health effects, national authorities and the World Health Organization (WHO) might be consulted. Significant economic repercussions of the crisis also affect firms, for example, because of travel bans or limits on trade, production, and consumption.

The accounting, reporting, and auditing of the financial statements of the relevant enterprises or groups are impacted by these economic repercussions. A few of these possible ramifications are highlighted in this publication. Companies and their auditors must take into account how it affects their business and examine them frequently because the impact on businesses will vary. One cannot forecast the pandemic’s future course, duration, or effects. Regardless, auditors and accountants should remind businesses of the initiatives for relief to the companies.

The Financial Reporting Council (FRC), the Accounting, Reporting and Auditing Oversight Service (SARAS) and the United States Accounting Oversight Authority (PCAOB) have published guidance on audit issues arising from the COVID-19 pandemic. This guide made it clear that amid the confusion and uncertainty created by the pandemic, auditors should not expect to be forgiven for any insufficiency of audit procedures. Indeed, the FRC has stated unequivocally that “auditors must continue to fully comply with the required standards”. This means, as a result of the difficulties and challenges, it is vital that auditors take proactive steps to obtain all necessary audit evidence so that the ability to perform audit procedures is not compromised. Managing the increasing risks appropriately is both vital and practical in this regard.

Difficulties of auditing during the pandemic

Auditors were faced with the need to change their daily work practices. For example, travel restrictions and social distancing meant that face-to-face meetings with company directors, stakeholders, client staff and colleagues were no longer possible. Physical access to the company was also limited or impossible. Reliance on technology, including electronic document management and review platforms and remote work tools, has become inevitable.

To make sure that all explanatory notes were gathered, the auditors and the company's directors had to collaborate closely. The required information must be accurately documented in the audit paperwork, which the auditor is required to deliver with great care. Complete audit documentation is now more crucial than ever, especially in light of the uncertain economic future.

A thorough examination of the assumption of a Going Business with accurate documentation. In this regard, it is important to have a close relationship with the company's management, from the current uncertain situation, as the pandemic and its consequences continue to develop.

If the auditor takes more time to complete the audit work than would normally be the case, this should be disclosed to the company as soon as possible. The FRC and SARAS guidance specifically provides that "additional time may be required to complete the audit, even taking into account the risk of delay in reporting by the company". Close and proactive collaboration with auditors' company staff is required to ensure audit processes are completed appropriately.

Because primary documentation, material collection, and review become more difficult for remote auditors, it is important that audit working papers and related electronic correspondence be carefully maintained to meet auditing standards. In the event that a dispute arises, it is important that all such documentation is easily accessible, collated and reviewed. Auditors should also note that the use of personal email for business purposes is not permitted. The Accounting, Reporting and Auditing Supervisory Service (SARAS) has issued guidance in relation to the global pandemic, specifically Covid-19, which clarifies the issues with which audit firms and auditors may face difficulties as a result of the emergence of global pandemics.

The impact of the pandemic on the audit process

As a result of the circumstances caused by the global pandemic, it was necessary to evaluate and rethink the main aspects of the audit. This transition phase is from the signing of the audit engagement letter to the issuance of the audit report. The best way for the auditor to gather sufficient and appropriate audit evidence while acknowledging that it might be necessary to stray from the original audit plan and take a different strategy has become a contentious issue.

It became necessary for the auditor to discuss the need for risk assessment and risk revision. Also a discussion of the extent to which the management of the audit entity assesses the impact of the situation caused by the global pandemic on the business. Remote working mode, for what period the outsourced company will be able to operate with existing funds and assets, for these and other matters more effort is required by the auditor to evaluate the prospects of the going concern. When the impact of the global pandemic on the audit process and the company is significant, the auditor should present a judgment on the going concern as a key audit issue in the audit report.

Communication between audit committees and financial auditors

During worldwide pandemics, audit committees must exert more effort in carrying out their supervision role over financial audits. Timely discussions are necessary on important subjects, such as the following:

Evaluating the events caused by the pandemic, which may have an impact on the financial statements. The impact of physical communication limitations between the financial auditor and the employees of the transaction entity on the audit process;

Disclosure in financial statements of qualitative and quantitative aspects of risks and circumstances caused by the pandemic. Clear and quick communication of auditors' expectations, as well as the quality of information disclosure and the corresponding impact on the audit report;

Auditors should inform audit committees in a timely manner of the impact that pandemic-induced processes and limitations may have on the quality of audit evidence. Also, if there is any interference with obtaining sufficient and appropriate audit evidence, what impact it may have on the audit opinion.


Pandemics will continue to have an impact on the world economy and financial markets. As facts and circumstances vary on a daily basis, companies should assess the aforementioned factors as well as related accounting matters. Given a number of the above issues, auditors may need more time to deliver reliable, audited information to investors even in the midst of a pandemic. Effective use of technology in the audit process and close liaison with audit committees are crucial. 

Keywords: Accounting, Auditing, Bookkeeping, SARS, COVID-19, Pandemic, Going Concern, Audit Risk, Financial Reporting.

JEL Codes: M40, M41, M42