COVID-19 Auditing issues - attending stocktakes

  • Mercia Group
  • 31 March 2020 10:00

Whilst we’re starting to adapt and cope with the extraordinary times we are now working in, there are questions emerging about how the disruption to our usual working practices, and specifically the guidance to not travel unless essential, will impact on current and upcoming audit engagements.

Audit firms will visit their client sites for a variety of reasons, the main one being the year-end audit fieldwork but what about those visits that are usually less flexible in their timing – attending the year-end stocktake?

We’ve been talking in the profession for a while about whether drones can replace auditor visits to some sites and provide an “eye in the sky” but I doubt many of you have gone so far as to make an investment yet!  So what to do for those March 2020 year-ends and onwards?

The FRC have recently issued a bulletin to help auditors cope with the disruption Covid-19 is bringing to their usual way of doing audits.  This guidance can be found here:

The FRC guides that the “auditor may consider which items are absolutely vital to test physically, and where evidence can be obtained through other means.  Verification through other means is more likely to be appropriate where balances are less material.   A small number of items which need to be physically verified may still be manageable on a case by case basis.”

As with all auditing, teams need to do a risk assessment here first.  How material is the stock to the audit?  Is it a high-risk area? Does the client have a perpetual stock counting process as well as a usual year-end count? Can you get audit evidence for Completeness and Existence of the stock any other way (such as if a third-party warehousing facility is used or by using time stamped photographic evidence)? Is your client even open for business and running a year-end count?

If you can attend, do you have staff that live close to a client site to minimise the amount of travel involved / time away from home?  If there are multiple stock-holding sites, can you visit one and then place reliance on the consistency of systems and controls in this area across the other sites?  Attendees will need to be well briefed so as to perform the count in the most time efficient (and safe) manner.

If you can’t attend a count now, does the client have good systems and controls in place to enable you to perform a count at a later date and roll the data back to the year-end?  This will mean auditing a sample of the movements in an out in the meantime (on a risk basis) but may be the simplest option where travel restrictions are being enforced or the client is already closed.

Ultimately, if you cannot attend the year-end count and cannot obtain sufficient evidence to support the material stock balance in the accounts, the audit team will need to consider the impact on the audit opinion (as a limitation of scope).

One important thing with audits though remains the same, coronavirus or not – documentation is key to explain the risk-based approach and results of whatever approach you are able to take.

Our Audit Manual (UK) provides you with all the current and permanent file programmes needed to undertake a statutory audit. Or you may wish to consider one of the Paperless Audit products where we work with three highly respected partners and which the Mercia Audit Methodology feeds into. 

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