Regulators around the world are increasingly concerned at the use of boiler-plate disclosures and are keen to encourage businesses to make disclosures relating to COVID-19 meaningful and informative for the user.
There seems to be increased focus on the alignment of the disclosures in the financial statements with other information. In a recent discussion held by GTI, 56% of the delegates noted that they are seeing an additional 10-25% of time being spent on audits this year compared to the previous year due to COVID. However, 40% indicated that they have not adjusted the 2020 fees to reflect the additional work they expect to do. In many countries the regulator has extended filing deadlines to give businesses more time to reflect the impact of COVID-19.
Audit firms are spending additional time on getting the disclosures right, with different time-frames needed for different clients. The pandemic had significant impacts on areas like revenue, however, one significant area of challenge is working with valuation experts, to ensure their work reflected the position at the balance sheet date and not later as the environment is changing so quickly. In fact, 50% of the delegates confirmed that they are using valuation experts only if the component item in the financial statements was material.
It could also be the case that many clients in preparing their financial statements and forecasts, are far too optimistic about what the future may hold for them. As a result, this may lead to the need for auditors to have some difficult conversations with clients on key areas including impairment and going concern. Therefore, additional review processes may be required to recognise the heightened risk. 54% of the delegates also indicated that they expect the Key Audit Matters to be markedly different this year to reflect the impact of COVID-19. Particular areas of note include disclosures in respect of going concern, impairment, revenue recognition, lease modifications, government grants, APMs and deferred tax.