Video Series: An Audit Cycle Unlike Any Other
Our experts discuss how to successfully navigate key pressure points companies can expect to face during this year’s audit cycle.
As the COVID-19 pandemic continues, companies remain focused on liquidity as the timing and amount of government support remains uncertain. To manage cashflow companies have explored a variety of approaches, from renegotiating the terms of existing debt to finding alternative ways to raise cash by issuing instruments such as warrants or preferred shares.
Leaner Accounting Teams
This audit season, companies should thoughtfully consider the need for additional accounting team resources or third-party support. Starting planning now to review changes to the close calendar and impacts to internal controls. Expect more robust analysis and documentation for technical areas, particularly going concern assessments, impairment, and other nonrecurring transactions.
This audit season, remote work environments present significant logistical challenges. Companies should prepare now for inevitable audit process changes. Considerations include creating a specific game plan for status meetings, using video technology to observe physical inventory, or facilitating on-the-fly discussions with off-site auditors.
Signed into law on Mar. 27, 2020, the CARES Act provided various forms of tax relief to businesses that affected tax law. Many changes will impact deferred tax accounting and the ability to realize deferred tax assets. Auditors will be carefully evaluating companies’ projections of future taxable income and other assumptions to evaluate the need for a valuation allowance.
Lower Materiality Thresholds
An adverse hit to operating results may have companies facing lower materiality thresholds during this year’s audit. Added scope on items such as accounts, systems, and locations may cause an increased risk of errors in audit findings. Talk to your audit team early about potential changes in scoping and allow more time to scrub documents, plan, and ensure appropriate controls are in place.
Given economic factors in the current year, companies should expect an additional level of scrutiny from auditors in considering potential goodwill impairment. Many companies that previously relied on the qualitative approach may be required to perform a more involved quantitative test. This requires management to perform a full valuation of business units and ensuring the assessment is well documented is crucial.
Going Concern Analysis
This year, expect a higher risk of substantial doubt for the going concern assessment that documents a business’ current position. Well-prepared companies should outline plans to address the 12-month period ahead. Using the forecasting process, consider upcoming debt payments, purchase commitments, or other cash outlays not linked to revenue, and develop evidence that supports assertions.
Throughout the pandemic, some companies enacted measures to contain personnel costs, realign the workforce to meet changing demands, and adjust strategy as the environment evolves. Each of these arrangements has specific details that determine the accounting treatment. Examine the terms now and ensure the accounting preparation accommodates existing and future needs.
Audits place high demands on both time and resources. Riveron’s extensive experience and straightforward approach results in a more efficient and streamlined audit process.Learn More
An Audit Cycle Unlike Any Other
As companies confront complexities stemming from COVID-19, the year-end audit cycle is likely to be one of the most challenging in recent memory. Mitigate the risks by planning early.Read Article