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Audit & Accounting Alert - April 2020 (Issue 3)
 


AT-A-GLANCE 


A recent article from Praxis Labs, Leading Beyond the Blizzard: Why Every Organization Is Now a Startup, used the analogy of a blizzard, a winter and a “little ice age” to visualize the world’s current situation in the COVID-19 crisis. The article compared the initial crisis as like a blizzard, which once past could leave a continued period like a winter, and that potentially could have an extended impact akin to the lengthy and radical changes brought about by a little ice age. Many organizations may be required to completely rewrite their business plans to survive in a changed world.
The accounting profession, while initially alarmed along with the rest of the business community with the swift rise of the threat, also was faced with the busiest time of the year from a standpoint of production. So adapting the logistics of getting the job done was more of a challenge than was keeping people busy. Fortunately, many accounting firms had for years already embraced the benefits of working remotely, so the crisis mainly imposed fine tuning of systems and procedures.
This issue will summarize some of the changes that COVID-19 has engendered thus far in audit and accounting. OurWorldwide Update is split into two sections The first covers Covid-19 news from organizations across the globe, while the second covers other news.

Gerald Herter - Editor

Audit & Accounting in
the Age of Covid-19


Profession adapts to a rapidly changing world

 
While established technology and flexible work at home policies have helped to facilitate the transition to the new normal of the COVID-19 world, there are some aspects of accounting and auditing that have required new approaches or consideration.
 
In accounting, two areas that have standards in place, impairment measures and reporting disclosures, necessitate analysis that assesses the near term and extended impact of the unforeseen pandemic. The method of determining impairment will be determined by the type of asset. Assets such as goodwill may be difficult to evaluate even in more normal times, with the onerous testing procedures.

The FASB and IASB have projects underway that could eventually simplify the goodwill testing process, or possibly bring back amortization, though that is less likely. Also, the FASB on April 8, 2020, voted unanimously to propose deferring certain effective dates for revenue and lease accounting. For revenue accounting, the FASB is proposing to defer the effective date by one year for topic 606, Revenue from Contracts with Customers, including optional deferral regarding subsequent amendments to Revenue, for franchisors that are not public business entities (PBEs).

For lease accounting, the FASB is proposing to defer the effective date by one year for topic 842, Leases, including subsequent amendments to Leases, for (i) a private company and a private not-for-profit (NFP) entity and (ii) an NFP that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market that has not yet issued financial statements. The Governmental Accounting Standards Board (GASB) has, as well, proposed to defer the effective date for leases covered by GASB Statement 87. More information on these developments may be available in the next month.
 
Disclosures will need to describe methodology and impact. In addition to asset measurement and impairment disclosures, subsequent events may warrant further descriptions of potential or actual impact from the pandemic. Overall, the prospect of a going concern issue cannot be avoided and should be addressed as well.  
 
In auditing, along with reviewing and examining the client’s new impairment calculations and reporting disclosures, certain procedures that traditionally dictated onsite presence now call for new creative approaches. Both the auditor and client personnel may have travel and access restrictions that result in revised procedures for gathering and recording transactions. The auditor will need to think through the impact on internal controls and risk assessment in redesigning appropriate testing techniques in this environment. 
 
Some facets of an audit are subject to specific requirements. For example, the very first Statement on Audit Procedure (SAP), issued in 1939 by the AICPA’s predecessor, mandated compulsory physical observation of inventory, as a result of the fictitious inventory fraud committed by McKesson & Robbins. One of the traditional modified inventory observation procedures may still work in this situation. If controls are good, and physical observation is performed before year end or after year end, a roll forward or roll back is an acceptable approach to verify the count. Otherwise, possibilities include contemporaneous use of a video camera or a drone. In this case, if the client is operating the camera during the count, the auditor will need to incorporate procedures to verify the location and timing of the video feed.
 
These are just a sampling of issues to consider when performing accounting and auditing functions during the pandemic. Accounting industry organizations and regulators have developed a wealth of information and aids for use in tackling the challenges. Agencies, such as the UK’s Financial Reporting Council (FRC) and the International Auditing and Assurance Standards Board (IAASB), have published guides for auditing in the COVID-19 world. The AICPA, major accounting firms such as EY, and other groups have detailed accounting and reporting topics that are relevant for Covid-19 era financial reports. The Worldwide Update below has links to these resources as well as a compendium of information that resides on the websites of these and other organizations. Finally, the Additional A & A News at the end of this Audit & Accounting Alert provides links to publications hosting resource pages and aids.
 
Covid-19 related actions and activities by audit and accounting organizations throughout the world.
 
 
INTERNATIONAL
 
IASB
International Accounting Standards Board (www.ifrs.org)
  1. IFRS 9 and COVID-19—accounting for expected credit losses, guidance published March 27, 2020. The guidance “does not change, remove nor add to, the requirements in IFRS 9 Financial Instruments. It is intended to support the consistent and robust application of IFRS 9… The document acknowledges that estimating ECL [expected credit losses] on financial instruments is challenging in the current circumstances and highlights the importance of companies using all reasonable and supportable information available—historic, current and forward-looking to the extent possible—when determining whether lifetime losses should be recognised on loans and in measuring ECL. The document reinforces that IFRS 9 does not provide bright lines nor a mechanistic approach in accounting for ECLs. Accordingly, companies may need to adjust their approaches to forecasting and determining when lifetime losses should be recognised to reflect the current environment.”

IFAC
International Federation of Accountants (www.ifac.org)
  1. COVID-19 Resources from IFAC's Network – link https://www.ifac.org/knowledge-gateway/series/covid-19-resources-ifacs-network
  2. International Auditing and Assurance Standards Board (IAASB) - Audit Considerations Arising from Changes Due to COVID-19, staff alert issued March 27, 2020, “highlights some of the more significant areas that may need to be further considered in designing and performing audit procedures to obtain sufficient appropriate audit evidence, and to report accordingly.


ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)
  1. Coronavirus Information and resources – link - https://www.accaglobal.com/us/en/cam/coronavirus.html

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)
 
  1. Update on the Coronavirus and Impact for Association Activities – link - https://www.cimaglobal.com/Members/Update-on-Coronavirus/

IIRC
International Integrated Reporting Council
(www.theiirc.org)

No New Developments 

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. Workforce Principles for the COVID-19 Pandemic: Stakeholder Capitalism in a Time of Crisis, White Paper published March 31, 2020. “While there currently is a significant focus on the public health and economic impact of the COVID-19 pandemic, the workforce and societal implications are no less profound. The guiding principles and the four workforce management imperatives outlined in this document are a preliminary response to the unfolding crisis. They are intended to serve as a tool for Chief Human Resources Officers (CHROs) and other business leaders. While businesses may need to adjust measures according to different policy environments, the concept of stakeholder capitalism can provide a framework for a responsible course of action at this pivotal moment.”
  2. Outbreak Readiness and Business Impact Protecting Lives and Livelihoods across the Global Economy,White Paper originally published in January 2019, “highlighted the growing risk of infectious disease and cautioned businesses that pandemics were worryingly underrepresented in considerations of risk. It proposed tailored insights on the impact of outbreaks, offering strategies for effective response and resilience.” Updated at https://www.weforum.org/reports/outbreak-readiness-and-business-impact.
  3. The COVID Action Platform – link - https://www.weforum.org/platforms/covid-action-platform - will focus on three priorities: 1. Galvanize the global business community for collective action. 2. Protect people’s livelihoods and facilitate business continuity. 3. Mobilize cooperation and business support for the COVID-19 response.

Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. Bulletin: Guidance for Auditors and Matters to Consider Where Engagements Are Affected by Coronavirus (COVID-19), issued March 26, 2020. “It is driven by two factors: In order to be able to give an audit opinion that is not subject to a disclaimer or qualification due to a scope limitation, the auditor must always obtain sufficient, appropriate audit evidence; Even in challenging times, the flow of high quality, independently assured information to support the functioning of capital markets is of fundamental importance. Reporting on audit engagements should be driven by the information needs of users of audited financial statements.”
  2. AGMs and impact of COVID-19, guidance issued March 18, 2020, as to the arrangements and conduct of Annual General Meetings (AGM).
  3. FRC guidance for companies and auditors during COVID-19 crisis – link - https://www.frc.org.uk/about-the-frc/covid-19.
 
ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)
  1. Coronavirus – updates – link - https://www.icaew.com/insights/coronavirus.

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No new developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. AICPA Coronavirus (COVID-19) Resource Center – link - https://www.aicpa.org/news/aicpa-coronavirus-resource-center.html
  2. Center for Plain English Accounting - Consequences of COVID-19 - Financial Reporting Considerations,Special Report published March 18, 2020, “provides succinct reminders to practitioners about some financial reporting matters that may need to be considered in light of the pandemic.”
FASB Financial Accounting Standards Board (www.fasb.org)
  1. Announcement, April 8, 2020, FASB to consider postponing effective dates for certain revenue and lease accounting standards for one year. See above article for details. Exposure draft to come this month.
GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. Announcement, March 26, 2020, to consider postponing effective dates for No. Statement 84, Fiduciary Activities, and Statement No. 87, Leases. Exposure Draft to come this month.
COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No new developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                
  1. In Light of COVID-19, PCAOB Provides Audit Firms with Opportunity for Relief from Inspections, Statement issued March 23, 2020, “up to 45-day relief period from inspections, with the exception of providing us access to audit documentation for certain engagements.” PCAOB expects to resume inspections on May 11, 2020.
SASB– Sustainability Accounting Standards Board(www.sasb.org)                               

No new developments

SEC– Securities and Exchange Commission(www.sec.gov)                      
  1. SEC Coronavirus (COVID-19) Response – link - https://www.sec.gov/sec-coronavirus-covid-19-response
Periodic roundup of recent and upcoming actions and activities by audit and accounting organizations throughout the world.
 
 
INTERNATIONAL
 
IASB
International Accounting Standards Board (www.ifrs.org)
  1. Discussion Paper - Business Combinations—Disclosures, Goodwill and Impairment published March 19, 2020. The goal is to improve the disclosure about acquisitions and the accounting for goodwill. The Board’s preliminary view is to help investors better understand an acquisition and its subsequent performance by requiring disclosure of management’s objectives for the acquisition in the year of acquisition, and how the acquisition has performed against those objectives in subsequent periods. To improve goodwill accounting, the Board would simplify impairment testing by providing relief from the quantitative annual impairment test and simplify how value in use is estimated. The comment period ends on September 15, 2020.

IFAC
International Federation of Accountants (www.ifac.org)
  1. Is Cash Still King? Maximising the Benefits of Accrual Information in the Public Sector, report issued February 26, 2020, jointly with ACCA “not only confirms that a complete public sector transition to accrual accounting will serve the public interest, but also contains 30 specific recommendations to improve accrual implementation.”

ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)
  1. Is Cash Still King? Maximising the Benefits of Accrual Information in the Public Sector, report published February 26, 2020, jointly with IFAC “not only confirms that a complete public sector transition to accrual accounting will serve the public interest, but also contains 30 specific recommendations to improve accrual implementation.”
  2. Global Economic Themes, report published February 19, 2020, in conjunction with the Industry Management Association, “examines three of the longer-term structural issues that are affecting the global economy as well as the global economic impact of the US-China trade tensions. The three issues are: the Euro – fiscal integration needed; China - becoming rich before it becomes old?; the USA – public debt challenges.

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)

No new develoments

IIRC
International Integrated Reporting Council
(www.theiirc.org)
  1. An overview of integrated reporting for Chartered Secretaries and Chartered Governance Professionals, guidance published March 12, 2020, “shares insights into the fundamental concepts of the International <IR> Framework, the structures that need to be in place to adopt it and the specific role Chartered Secretary and Chartered Governance Professionals can play in its implementation.”

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. How Can Trade Rules Support Environmental Action?, report published March 26, 2020. “As governments and businesses grapple with the effects of COVID-19, other global challenges remain. Once the immediate crisis abates, countries must intensify environmental action to tackle climate change, pollution, and biodiversity loss, even while restarting their economies. Trade policy has a vital role to play. This briefing paper by the Global Future Council on International Trade and Investment highlights the links between trade and the environment, summarizes efforts to date and outlines five ways in which trade rules could support environmental action.”
  2. Toward Common Metrics and Consistent Reporting of Sustainable Value Creation, White Paper published January 22, 2019, “proposes a common, core set of metrics and recommended disclosures that International Business Council members could use to align their mainstream reporting and, in so doing, reduce fragmentation and encourage faster progress towards a systemic solution, perhaps to include a generally accepted international accounting standard.”
Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. Auditor Reporting Bulletins, issued March 30, 2020, provide guidance for auditor reports on revised accounts, Companies Act reports, and include illustrative statutory auditors reports on United Kingdom private sector financial statements.
 
ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)

No New Developments

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No New Developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. Auditing Standards Board – Statement on Auditing Standards 139 - Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134, issued March 20, 2020, “aligns these three AU-C sections (the AUC 800 series) with the relevant auditor reporting standards in SAS No. 134, thereby updating the form and content of auditors’ reports addressed in the AU-C 800 series to be more consistent with the standards of the International Auditing and Assurance Standards Board and recent updates to PCAOB standards.” Effective for periods ending on or after December 15, 2020.
FASB Financial Accounting Standards Board (www.fasb.org)
  1. Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, ASU No. 2020-04, issued March 9, 2020, to “provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.” Effective as of March 12, 2020 through December 31, 2022.
  2. Codification Improvements to Financial Instruments - An Amendment of the FASB Accounting Standards Codification, ASU No. 2020-03, issued March 9, 2020, “makes narrow-scope improvements to various aspects of the financial instruments guidance, including the current expected credit losses (CECL) standard issued in 2016. Effective at various dates.
GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. Exposure Draft - Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements, issued February 21, 2020. “The proposals set forth in the Exposure Draft would replace the existing criteria for disclosing information in notes to financial statements. The proposals elaborate on the types of information that should be disclosed in notes and the types of information that are not appropriate for note disclosures.” The comment period ends April 17, 2020.
  2. Exposure Draft - Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, issued March 9, 2020, “is designed to mitigate financial reporting costs associated with certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and other employee benefit plans.” The comment period ends April 10, 2020.
COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No New Developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                

New Developments

SASB– Sustainability Accounting Standards Board(www.sasb.org)                               

No New Developments

SEC– Securities and Exchange Commission(www.sec.gov)                      
  1. Amendments to the “accelerated filer” and “large accelerated filer” definitions in Exchange Act Rule 12b-2., issued March 12, 2020. “The amendments would allow smaller issuers that have been public for more than five years, but have not yet reached $100 million in revenues, to continue to benefit from the JOBS Act exemption as they build their businesses, while maintaining important investor protections… As a result of these amendments, and unlike larger issuers, these smaller companies will no longer be required to obtain a separate attestation of their ICFR from an outside auditor.”


ADDITIONAL
A&A NEWS



Accounting Today's complete coverage of the corona virus impact
(https://bit.ly/2Rxsp1Y)

EY's Accounting and reporting considerations for the effects of the corona virus outbreaks
https://www.ey.com/en_us/assurance/five-financial-reporting-issues-to-consider-as-a-consequence-of-covid-19


Accountancy Age's Resource on UK regulations on accountancy during corona virus
(https://bit.ly/2ybHfod)


California CPA Society Coronavirus Resources and Information
(https://bit.ly/3cg5al8)


Accountingweb's Coronavirus Content Series
(https://www.accountingweb.com/content/coronavirus-content-series)


Accountancy Daily Corona Virus Resources
(https://www.accountancydaily.co/coronavirus-0)

China Briefing's Coronavirus Insights for Your Business in China
(https://www.china-briefing.com/landing/coronavirus-updates)


Pandemic-specific guidance for auditors and preparers - Journal of Accountancy
(https://bit.ly/3b1x2cp)
 Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession.  The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors forspecific advice.


Editor Gerald E. Herter ~ HMWC CPAs & Business Advisors, 17501 E. 17th Street, Suite 100, Tustin CA
email:  [email protected]
     
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