The 2020/2021 audit season may look a little different than you expected. Many companies are still operating remotely, audit procedures may adjust. Here’s what you need to know about audits and year-end financial statements for your company. 

A New Need for Tech

When the pandemic hit last year, many accounting firms went remote. Thankfully, the technologies that enable remote work had already been on the market for a while. Remote access, cloud computing, videoconferencing, and drones with camera all helped reduce operating costs and disruptions to business during normal time. During the pandemic, all this helped firms function while limiting the spread of COVID-19. 

In March 2020, accountants had completed many of the 2019 audits, which meant that social distancing measures did not affect them directly. Next year, however, might be different. From year-end inventory observations to audit testing to management inquiries, this year’s audit functions may need to be performed remotely. It’s important to know which technologies your audit team will use to perform remote audits so you can prepare. 

Prioritizing High-Risk Areas

Expect your auditor to target three critical areas in a remote audit: internal controls, fraud and financial misstatement, and physical inventory. 

1. Internal controls. Effective client controls are important. Historically, auditors have tested controls during audits. This is more difficult now that employees are working remotely. Auditors will assess if controls have been adequately modified and whether they’re operating effectively in a remote environment.
2. Fraud and financial misstatement. Traditionally, auditors interview managers and other governing individuals to assess fraud risk. In-person interviews help auditors gain information from body language and interpersonal dynamics. To replace this information, auditors can request video conferences over phone or email options. 
3. Physical inventory counts. Without the ability to go to where inventory is located, auditors can use drones, videoconferences, or live feeds from warehouse cameras to assess the reliability of inventory counts or observe the counting process.

Reporting Changes

Audit firms may not generate the same data with the same confidence this year because of insufficient access to the data that’s needed to comply with auditing standards. This may cause auditors to issue a modified report, including the limitations of the report and the restrictions to scope. 

For more information about remote auditing and possible modifications to your report, contact your trusted advisors at Smolin Lupin.