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FEI Daily: What challenges have arisen in performing external audits during this pandemic?
Wes Bricker: First of all, we have focused on the pursuit of providing high quality audits; this is our starting point. We focus on our goal, which is to build trust in society and solve important issues. In part, we do this through audit services, which help investors and other stakeholders make decisions on important matters with the assurance that our auditors have reviewed the numbers.
Our ability to continue to deliver is made possible by upgrading the skills of all our employees around digital tools and technologies and by our ability to interpret the results.
We have digital skills which are essential for delivering on a virtual basis. In our case, audits can be delivered without a physical presence in almost all cases. Our ability to deliver virtually starts with our people, but then extends to the technology our people have at their fingertips:
- connect with our customers through PwC technology;
- use technology to extend the scope of the audit by examining data in different ways; and
- to help us accumulate information for audit committees and other stakeholders.
The first element is about people, the second element is technology, and the third element is everything we’ve done to reimagine what auditing is in a way that allows our people and our machines to work together to provide data-driven data. decisions and provide high quality audits. These three things frame the question of how we think about the pandemic. We believe we will continue to fulfill our role and take full advantage of the investments we have made to enable us to continue to fulfill our mission.
FEI Daily: What should CFOs discuss with audit committees right now?
Bricklayer: Audit committees and management teams need to focus on the issues that really matter. So these are the complex, difficult, or even the riskiest areas that require special attention – topics such as potential impairments, the company’s ability to continue operating, or other areas. Another area concerns the impact of changes in working practices on internal controls that are so important to the reliability of the financial reporting process and the credibility of financial statements.
One of the other things audit committees and CFOs need to be mindful of is setting the right tone at the top and making sure the tone is clear. This is especially important during this time of uncertainty in which many companies operate. Be clear that the tone that permeates the entire company is one that emphasizes the importance of high quality financial reporting, speaking out and being heard if there is has issues that require attention for failure in the reporting process and to continue to monitor areas of concern and complaints and resolve them in a timely manner.
Another key aspect of this tone is to adopt this axiom ânever procrastinate what you can do todayâ. This attitude rightly points out that there are areas of financial reporting that can make real progress through the wise and thoughtful use of technology and a virtual presence. It is clear that communication is important to bring this to light. Other times things can be delayed. Finding the right balance between moving forward and holding back while meeting market needs for periodic financial reporting is something that CFOs and audit committees will certainly want to consider carefully: it becomes especially important. in the event that a company may need to seek to enforce the SEC-authorized deferral of time limits for periodic disclosures.
FEI Daily: Many companies are struggling to make forecasts and estimates right now. What advice do you give them?
Bricklayer: This general feedback that I have provided regarding the estimates boils down to several things.
First, stay focused on the accounting framework to which the estimates relate. For example, if the estimate relates to the earning capacity of the part of an enterprise that supports the collectability of goodwill. Often times, this is often a series of longer term cash flows. It is therefore important to remain focused on the time horizon in relation to the accounting framework.
Second, the credibility of the estimation process in relation to the opinions of management. For example, if management has a view of the company’s profit forecast on the one hand, but has a different view of cash flow or profit estimates for its depreciation processes, it should stop there. and consider why they are different.
Third, the requirements of accounting standards in areas where management may not have current expertise. They may not have had to apply particular aspects of the standards recently. At present, these standards are much more meaningful in the preparation of financial statements. The importance of keeping abreast of accounting requirements and drawing on relevant expertise, so that management can have confidence in the correctness of judgment, completeness of reflection and correctness of conclusions is extremely important.
The credibility of forecasts, consistency with the company’s vision and good knowledge constitute a good framework for thinking about the way in which management wishes to communicate with its audit committee on these same judgments.
FEI Daily: Critical Audit Matters (CAMs) is a relatively new standard. How has COVID-19 impacted CAMs so far? How could COVID-19 impact CAMs in the future?
Bricklayer: CAMs are defined as areas of the audit that are particularly complex, difficult, or judgmental. Certain aspects of the verification process will meet these criteria. With respect to these criteria in mind, I focus on the audit process regarding elements of the financial statements or disclosures. This means that I expect the CAM to be more descriptive than COVID-19; it is the effect that uncertainty has on the verification process. (for example, areas of significant judgment in evaluating management’s impairment decisions, areas of significant judgment in the area of ââgoing concern or the realization of deferred tax assets)