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March 11, 2019

Navigating COVID-19 Audit Challenges

Social distancing and other pandemic safety measures present challenges. Here's how to navigate around them.

Under the new remote work environment in which many CPA firms and their clients now find themselves, external auditors have had to modify some of their traditional audit procedures.


As part of an annual audit engagement of a manufacturing client, a mid-sized CPA firm in the New York Tri-State area would normally perform an inventory observation — but travel restrictions and other COVID-19 obstacles made an on-site visit risky, if not impossible. The CPA firm contacted Collemi Consulting for advice and we suggested an alternative approach: do a remote physical inventory observation, using either a tablet or a smartphone.


A limited number of the manufacturing firm’s employees were still working on-site, wearing personal protective equipment (PPE) — so, under the audit engagement manager’s video-supervision, the employees could do a count, open boxes for testing, and perform other tasks as needed. Audit documentation requirements could be met through still photos, videos and the engagement team’s detailed notes.


The ongoing COVID-19 pandemic has had a significant economic and financial impact on businesses, and has also presented numerous challenges for auditors as they attempt to comply with their professional responsibilities and regulatory requirements. Consequently, audit engagement teams should also be prepared to address a wide range of issues.


  • Difficulty accessing client records — especially for clients who still maintain their records in hardcopy
  • Disclosure of enhanced risks and uncertainties; especially significant estimates and vulnerabilities due to concentrations in revenues, material, labor, specific markets, geographic and other areas
  • Adjusting procedures to address potential fraud risks
  • Obtaining audit evidence in cases where a client location is either closed or key personnel are not on-site
  • Confirmations may be a viable alternative to obtain audit evidence
  • In addition to video-enabled observation, clients that are unable to perform physical inventory counts at year‐end may decide to perform them on an alternative date, or perform alternative procedures if the client is using a cycle count procedure and a perpetual inventory system


In addition to coping with remote physical audits, particular focus should be on understanding the internal controls of the remote environment, increases in going concern assessments, significant financial reporting and disclosure implications, and the likelihood of not issuing an unmodified opinion.


In order to understand the client’s remote environment internal controls, especially in an unstable period, engagement teams should inquire whether any changes to internal controls occurred after preliminary work commenced. Often, those controls may have changed to accommodate remote work forces, and engagement teams will need to evaluate the degree of reliance that can be placed on those controls — especially since they may have been in effect for only a brief portion of the current year.


Obtaining an understanding of controls may be achieved remotely, but inquiry alone is not sufficient to determine whether they have also been implemented. Auditors will need to consider what evidence can be obtained remotely to determine if effectively designed controls have been placed in operation, and a scope limitation may need to be issued if they are unable to obtain sufficient appropriate audit evidence.


The pandemic is driving more uncertainty, which may cause deterioration in a company's operating results and financial position and lead to a higher incidence of going concern assessments. It could be extremely difficult for auditors to evaluate management’s assessment of conditions, or events that may have an effect on the company’s ability to continue as a going concern.


Significant financial reporting and disclosure implications could include adjustments to fair value measurements, as well as impairments to goodwill, indefinite-lived intangible assets, long-lived assets, and such other intangibles and tangibles as receivables, inventory, contract and deferred tax assets.


Auditor’s report implications could include increased use of Emphasis of a Matter (EOM) paragraph(s) triggered by an auditor determination that the COVID-19 pandemic is a major catastrophe that has had — or continues to have — a significant effect on the client’s financial position, results of operations and cash flows.


COVID-19 has had an unprecedented impact on many businesses, and external auditors are now challenged with having to continue to conduct audits in accordance with Professional Standards and comply with rules and regulations during the upheaval. Trusted technical consultants can provide valuable and insightful guidance to audit engagement teams, enabling them to provide the highest level of service to their clients while protecting the public interest.

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There’s Only One Year Left to Implement the PCAOB’s New Quality Control Standards

November 18, 2024
ADDITIONAL GUIDANCE: Since this blog was first published, the PCAOB released two new guidance documents. The Nov. 26 updates can be found here: An additional overview of the requirements of QC 1000 and staff guidance for firms about how to comply with the standard. This document provides additional staff insights on scope and applicability, responding to engagement deficiencies, and documentation for AS 2901, Responding to Engagement Deficiencies After Issuance of the Auditor’s Report. The Public Company Accounting Oversight Board (PCAOB) recently announced a new set of quality control standards designed around a risk-based approach. And there’s only one year to design and implement them. The PCAOB’s new QC 1000 standard is more than two decades in the making, as it replaces the quality control standards it adopted on an interim basis back in 2003 from the American Institute of Certified Public Accountants (AICPA). The new standard is intended to make independent registered public accounting firms significantly improve their quality control (QC) systems. QC 1000 applies to all PCAOB-registered member firms, with more extensive requirements for those that audit more than 100 issuer clients annually. It has been approved by the U.S. Securities and Exchange Commission (SEC) and goes into effect on December 15, 2025. The new requirements and the work required to implement them will be extensive, and the larger public accounting firms require external oversight of the QC system. Therefore, it is strongly recommended that firms do not put it off until the last minute. At its core, the new standard is intended to enable firms to identify their specific risks and design a quality control system including policies and procedures to guard against those risks. The overall goal is to establish what the PCAOB calls “a continuous feedback-loop for improvement.” In this, the new standard differs from the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Management No. 1 (ISQM 1) and the AICPA Statement on Quality Management Standards No. 1 (SQMS 1). An extensive but not comprehensive comparison document of the three standards may be found here, but is presented only as a reference tool. New requirements QC 1000 has requirements that do not appear in other QC standards. They can be more prescriptive or more specifically tailored to the U.S. legal and regulatory environment. There are 10 main areas in which the QC 1000 standards go beyond other, existing standards. These are: Evaluation and Reporting: QC systems must be evaluated annually and reported to the PCAOB. They must be certified by specific individuals with responsibility and accountability for the firm’s QC system. Governance and Leadership: Firms must create and maintain clear lines of responsibility and supervision. Larger firms must have outside oversight and a confidential complaint system. Ethics and Independence: Quality objectives must be tailored to the U.S. regulatory environment. Larger firms must implement an automated system for identifying securities investments that could impair independence. Monitoring and Remediation: QC 1000 divides monitoring into engagement and QC system levels. Engagement and QC deficiencies are defined, including requirements for their determination. Larger firms must (and smaller ones should) monitor in-process engagements. Quality Objectives: The firm’s personnel must comply with its policies and procedures Information and Communication: Quality objectives for communication with external parties are established at the firm and engagement level. Communication of the firm’s QC system’s policies and procedures must be communicated in writing. Resources: The firm’s personnel must adhere to standards of conduct. Policies and procedures must address both enumerated and circumstance-specific competencies. Mandatory training, licensure and technological resource requirements are established Risk Assessment Processes: Quality risks must be identified and assessed annually. Roles and Responsibilities: A single person must be assigned responsibility for each role and responsibility in the QC 1000 standard. Documentation: With respect to the QC system’s operation, documentation that allows an experienced auditor to evaluate the operation of quality responses must be provided. Documentation must be retained for at least seven years. That’s not an exhaustive list, but it does give an indication of how much work will be involved. And it’s happening at the same time as the AICPA extensive new Statements on Quality Management Standards (SQMS) requirements are coming into effect . Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.
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