The dedication displayed by audit firms since the coronavirus pandemic caused a shift to remote working left a strong impression on Center for Audit Quality Executive Director Julie Bell Lindsay.
“For the first two weeks, in talking to members of the firms and teams and staff, they were working around the clock, and I’m not exaggerating, to get resources to the frontline partners and engagement teams, and coordinating with the SEC and the PCAOB,” Lindsay said.
The Center for Audit Quality (CAQ), which is affiliated with the AICPA, has continued to develop resources for auditors, audit committees, investors, and others during the coronavirus pandemic. A CAQ webpage dedicated to the pandemic provides resources in a location auditors and others can bookmark for easy access.
Lindsay, who became the CAQ’s executive director in May 2019, is approaching her one-year anniversary on the job with a mission to help the audit profession and the public get through the crisis.
Here are her observations:
Public company auditors are well suited to work remotely. When Lindsay took her post at the CAQ, she was excited about the ways auditors were using technology.
“They are already built to work in a remote environment,” she said. “The complicating factor that you have now is that everyone is in a remote environment, and that includes company management as well as audit committee members, board members, etc.”
In this remote environment, though, Lindsay said it’s imperative that audit quality should not suffer. She said auditors will need to combine creativity with skepticism to perform high-quality engagements in the current environment.
For example, auditors are using video feeds to observe inventory. Lindsay said auditors also will have to identify additional ways to verify that the inventory they inspect by video is exactly what it appears to be — and where it appears to be.
Data gathering and evidence gathering when auditors and client staff are working remotely is another example.
“How do you make sure that the auditor is getting the evidence they need to support the various conclusions that they’re making?” Lindsay asked. “There were some things that had to be worked out, but from what I can tell, in working across all the different parties, they have been able to work through those so-called hurdles in a way that has been productive and never sacrificing audit quality.”
Audit firms have been taking care of their people and the community. News of partners and firm leaders voluntarily reducing their pay to decrease the pandemic’s economic impact on less senior staff members has demonstrated firms’ commitment to their people and their work.
“We’re hearing reports of management at some of the firms taking pay cuts to help ensure that layoffs are a last resort,” Lindsay said. “This is not only the right thing to do for their people, but also going back to the notion that insisting that audit quality can’t suffer, it helps them continue to deliver high-quality audits and reviews for clients.”
Individual firms also have made numerous contributions to their communities during the pandemic. These include donating funding for food for people in need, paying for personal protective equipment for health care professionals, and creating a free pandemic response app that helps businesses prioritize their organizations’ health and safety.
“They are stepping up with additional commitments outside of their firms and outside of their own people to address the crisis, whether it’s dealing with community issues or dealing with frontline workers in this environment,” Lindsay said.
The CAQ is also helping its community through support for the DC Education Equity Fund, a not-for-profit organization dedicated to equity and excellence for all students.
Fraud risk is heightened. Three elements that can lead to fraud — opportunity, pressure, and rationalization — all are heightened during the pandemic.
Increased remote work and activity brings more opportunity for cyberfraud in particular. Pressure is increased in this environment as companies and people work to meet targets and provide for their families during times of economic turmoil.
Rationalization is likely to rise as people see their livelihoods threatened by the pandemic. A CAQ resource published this week discusses the three elements of the fraud triangle and the fraud challenges that exist amid the pandemic.
“Most people are going to behave ethically,” Lindsay said. “But in this type of environment, [there is a lot of] pressure.”
Skepticism remains essential. Lindsay said professional skepticism remains important in this environment because audit quality cannot suffer.
Company management faces struggles with the health and safety of its people, supply chain challenges, and sometimes even personal crises to deal with at home.
“The auditor is going to be respectful of all of that,” Lindsay said. “But the auditor is never going to lose sight of needing to do their job based on the standards that they abide by.
“The standards have not changed. It’s the application of the standards that we’re dealing with in this environment. From what I’ve seen, firms are really setting the tone at the top that we’re going to do our jobs and we’re going to do it in a way that we’re not going to sacrifice independence or skepticism or objective thinking, subjective judgment, all the different traits that the auditor brings to the process.”
Regulatory delays by the SEC and PCAOB have been helpful. The SEC permitted delays in company reporting, and the PCAOB provided opportunities for inspection relief related to the pandemic.
“Some of the things that companies have to deal with in this environment, like a going concern analysis, take a little bit more time, both for company management and auditors,” Lindsay said, “and I think the SEC recognized this in granting the relief it did.”
The opportunity to delay PCAOB inspections temporarily removed a task that needs firms’ attention and resources when firms are stretched thin.
“The 45-day period has allowed them to really focus on their people and their clients and making sure they’re able to do the work in this environment, which has been very, very helpful,” Lindsay said.
She added that some of the conditions that caused the PCAOB’s initial inspection delay still exist with the PCAOB’s May 11 date for resumption of full inspection activities approaching.
Audit committees can focus on ethics. Audit committees and board members need to reinforce companies’ commitment to ethics and culture during this time, Lindsay said.
“People are scrambling, and people take their cue from their leaders,” she said. “Whether that’s company management or that’s the outside board members they’re interacting with, setting that tone is very, very important.”
For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.