Audit tips for a pandemic-changed environment

By Ken Tysiac

The business environment amid the COVID-19 pandemic has meant significant changes in the risks and results auditors consider and test during their engagements.

In many cases, revenue and expenses have been altered dramatically; supply chain and labor challenges have presented new risks; and business strategies have changed swiftly as audit clients attempt to survive and thrive in the new environment.

"Through the blur of nearly two years of remote working, auditors have had to be nimble and flexible to [manage] that one constant that arguably was thrust upon us in 2020 and has continued throughout 2021," George Botic, the PCAOB's director of Registration and Inspections, said Wednesday at the AICPA & CIMA Conference on Current SEC and PCAOB Developments. "Unpredictable change, and how we adapt and respond to it."

Botic said the PCAOB's inspections of audit firms in 2022 will focus on many areas that are driven by the current economic environment. These include:

  • Initial public offerings;
  • Merger and acquisition activities;
  • Widespread disruption in supply chains;
  • Negative effects from COVID-19 on certain industries; and
  • A continued focus on audits of special-purpose acquisition companies (SPACs) and de-SPAC transactions.

Broker-dealer inspections, meanwhile, will focus on audits of broker-dealers with responsibility for holding customer funds, maintaining custody of customer securities, and providing customer account statements.

Meanwhile, the PCAOB has found that confirmations are causing problems for audit firms. Botic said certain firms aren't performing sufficient procedures when a service provider is used in the confirmation process, adding that the use of a service provider doesn't relieve an auditor of the requirement to maintain control over the confirmation process.

"Audit firms should consider whether their policies and procedures related to the use of a service provider to send and receive confirmations provide reasonable assurance that their personnel comply with professional standards," Botic said.

The pandemic environment also has created personnel-related challenges for audit firms that the PCAOB will be watching closely. Botic said an audit firm's quality-control policies should be designed to consider to the importance of staff knowledge and experience, and firms should be aware of the risk that staff turnover creates for audit quality.

"Rapid staff turnover may result in increased workloads and fewer experienced professionals with a detailed understanding an audit firm's methodology, policies, and procedures," he said.

Botic said his key takeaways from this challenging year are:

  • Exercising due professional care and professional skepticism in all aspects of the audit remains critical. "While both should be applied at all times, the continued disruption from the pandemic and the risks associated with the current economic climate serve only to heighten their importance," he said.
  • Thorough and continuous risk assessment procedures need to be performed, and the impact of changes due to the current economic climate need to be understood. "Auditors should reconsider their initial assessment of risks and modify planned audit procedures as circumstances evolve," he said.
  • Auditors should focus on fraud procedures and incorporating unpredictability in their engagements. "I mentioned this last year," he said, "and given the ongoing uncertainties, I want to reiterate its importance to the audit and the expectations of investors."

Ken Tysiac ( is the JofA's editorial director.

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