Question 1(a)

The consequences of the Covid-19 pandemic have created an environment of uncertainty.

Many countries have blocked the borders including Malaysia, the government has implemented a
Movement Order Control (MCO) to send people indoors. All in all, because the Covid-19 world
has stalled, it has led to a global recession and created new risks for companies. These risks have
started to pose challenges both operationally and financially. In the coming days and weeks,
companies would assess risks more clearly and respond to new challenges with greater certainty.
The companies would also have to consider the implications of COVID-19 in their financial
reporting such as the preparation of complete books of accounts, the conduct of assessments, the
preparation of accounting estimates and the determination of fair values, and the making of
appropriate disclosures in financial statements and other information.
Under ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement
Through Understanding the Business and its Environment, requires auditors to identify and
assess the risks of material misstatement, whether due to fraud or error, at the financial statement
and assertion levels, through understanding the entity and its environment, including the entity’s
internal control, thereby providing a basis for designing and implementing responses to the
assessed risks of material misstatement. In addition, paragraph 31 of ISA 315 (Revised) states
that the auditor’s assessment of the risks of material misstatement at the assertion level may
change during the course of the audit as additional audit evidence is obtained. In circumstances
where the auditor obtains audit evidence from performing further audit procedures, or if new
information is obtained, either of which is inconsistent with the audit evidence on which the
auditor originally based the assessment, the auditor shall revise the assessment and modify the
further planned audit procedures accordingly. 
With the outbreak of COVID-19 the auditor will determine the effect of this outbreak on
its audited businesses. Audit risks may become greater or there may be new risks due to current
events such as those affecting the economy, credit and liquidity of the business. COVID-19's
implications include information on additional risks of material mistakes that the auditor has not
previously recognised. For the auditor, as part of audit planning, after the COVID-19 outbreak,
the auditor may need to reassess the risks of the material misstatement of financial statements.
Furthermore, the unpredicted of COVID-19 is a state of emergency that impacts the
operating environment of enterprises. As a result, auditors must consider how this impacts their
risk assessments and whether any revision is needed. Risk assessments should be constantly
reassessed and optimized as the situation progresses before the signature date of the audit report,
highlighting this as an environment to be handled with greater professional skepticism. For
example, according to ACCA’s article on Covid-19 issues for corporate reporting, it is possible
that the pandemic will be a "triggering" problem requiring more extensive impairment testing
and greater scepticism. Given the increased degree of uncertainty about future business
performance and economic conditions that affect assumptions, it is likely that valuations will be
difficult to determine. As such, we expect more auditors to acknowledge an increased audit risk
in asset valuation.

Question 1(b)
As stated in Para 6 of ISA 500, “the auditor shall design and perform audit procedures
that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit
evidence.” However, the implementation of Movement Control Order (MCO) from 18 March
2020 onwards due to the spike in COVID-19, has resulted in most of the auditors facing the
problem of accessibility restriction to their audited entity premises. To overcome this problem,
the alternative ways are considered to obtain sufficient appropriate evidence.
External confirmation could be from confirming party in electronic form. Auditors should
validate the sender’s email address to mitigate the risk of reliability. In the current circumstances,
auditors can only rely on the softcopy of confirmation because there might have the challenges in
establishing and detecting the proof of the original copies, authority of respondent, and
alterations. The way to evaluate the appropriateness of audit evidence, auditors should firstly
examine the entity’s internal control in order to ensure the reliability of records or documents
that are provided in electronic form. This is because the original documents are more reliable
compared to the photocopies or softcopy documents. The reliability of audit evidence is
guaranteed if there is a complete internal control in the process of preparation and maintenance
of financial reporting in the reporting entity.
If auditors have the issues in obtaining sufficient appropriate evidence, they shall modify
their opinion in the audit report in compliance with ISA 705 (Revised). A qualified opinion is
expressed when the auditors are unable to obtain sufficient appropriate evidence which base the
opinion; any possible effects of undetected misstatements on financial statements that are
material but not pervasive would be stated by auditors in the audit report [ISA 705, para. 7(b)].
On the other hand, Para 9 also stated that the auditors should disclaim an opinion when preparing
the audit report if they could not obtain sufficient appropriate evidence and the undetected
misstatements are material and pervasive. 

Question 1(c)
Going concern of an entity may be significantly affected by COVID-19 pandemic which
is characterised by extreme uncertainty. Material uncertainties will cast significant doubt on the
ability of an entity to operate and thus need to be disclosed in the financial statements.
Information, at least 12 months from the date of interim financial statements, that indicates the
liquidity of an entity to continue their operations and meet their obligations when they are due
will need to be considered when having the going concern assessment (What is the impact of
COVID-19 on interim financial statements, 2020, para. 10). Restrictions, travel bans, financial
assistance by government or other sources, financial health of customers and suppliers and other
factors that have impact on the expected profitability and other key financial performance ratios
will also need to be taken into account when accessing the going concern of an entity (Arnold,
2020, para. 11). With the presence of significant uncertainty due to COVID-19, disclosure
should include assumptions and judgments from various scenarios in the going concern
assessments.
Due to the evolving nature of uncertainties, the management should always assess and
anticipate the effects of COVID-19 on the activities of the company and obtain sufficient audit
evidence to conclude the appropriateness of using going concern basis (Smith, 2020, para. 8). If
there is any indicator that the company is no longer a going concern, or the company decided to
liquidate or to cease trading, the financial statements should be prepared on a different basis,
such as liquidation basis.
The impact of COVID-19 will be shown in an entity’s financial statements if the wide-
spread of the virus occurred during its reporting period. According to ISA560 Para 10, auditors
might be required to amend the auditor’s report if there are material adjustments during the
subsequent events period, that is the period after the date of auditor’s report but before the
issuance of financial statements. The entity is required to identify the events are adjusting or non-
adjusting where needed to include in the financial statements. A written representation should be
requested from management or those charged with governance to clarify the subsequent events
which required adjustments or disclosure have been adjusted or disclosed, for example, updating
the carrying amount of assets (ISA560, para. 9).
The Financial Reporting Council of UK stated that the impact of COVID-19 is reflected
as a non-adjusting event for entities which prepare financial statements on or before 31
December 2019 (Gould & Arnold, 2020). However, the reporting entities are needed to
determine the impact of this pandemic and make additional disclosure, if required. Entities
usually disclose those events that might result in significant change to assets or liabilities which
will have a significant effect on entities’ future operating conditions. In accordance with
MFRS110, the entities should disclose the nature of events, and estimation of financial effect if
the non-adjusting events are material. While for the reporting period that ended January 2020
onwards, it is going to be the current-period event which requires continuity evaluation and
assessment to find out the developments after the reporting period should be recognized in the
reporting period. Management is requested to consider the operating related specific
circumstances and existence of events in the entity's jurisdiction as stated in MFRS110. By the
end of March 2020, the entities are advised to include the estimates and forecasts such as
impairment of property, plant, and equipment and going concern into their financial statements,
as the expected impact of COVID-19. This is because at this time, it was difficult to determine
the existence of COVID-19 and classified the accounting impact as a non-adjusting event (Grant
Thornton, 2020). 
As stated in ISA560 Para 10 and 11, auditors would like to determine the need of and
how is the amendment of financial statements by having a discussion with management or those
charged with governance. If management amend their financial statements because of COVID-
19,  auditors would need to carry out the additional audit procedures to obtain sufficient
appropriate evidence and provide a new audit report with ‘Emphasis of Matter’ or ‘Other Matter’
paragraphs, based on the amended financial statements which is dated after the amended
financial statements are approved.
ISA330, The Auditor's Responses to Assessed Risks, provides that the auditor shall
evaluate the assessments of material misstatement based on the audit procedures and audit
evidence at the assertion level before the conclusion of the audit. Thus, the auditors should revise
any risks that are identified previously or other risks that give rise to material misstatements
(MIA, 2020, para. 12). The design and implementation of their responses to the identified risks
will have to be revised for its relevance as well. In addition, the auditor shall also revise the
materiality of a financial statement as a whole assessing the impact of COVID-19 outbreak. For
example, there is information that would have caused the auditor to determine a different
amount(s) initially.
Question 1(d)
The consequences of the COVID-19 pandemic have a serious impact across the globe
include engaging in audit works that may have created an opportunity for fraud. Due to COVID-
19, Malaysia’s government has implemented a Movement Control Order (MCO) to reduce
infection thus, all the business is required to operate on a work from home basis unless otherwise
stated. All the employee who engages in audit, they are forced to work in a new environment and
may not be able to exercise strict control and regulation as usual hence, they may miss the "red
flag" of fraud risk. Besides, it also creates an opportunity for misrepresenting financial records
and misappropriate assets. In addition, a company may also increase the incentive to commit
fraud which misrepresents the nature of their businesses to gain for certain government subsidies.
Furthermore, during MCO period, an individual may work under pressure due to major
work-related or personal pressure leads to unconventional behaviours such as increase risk-
taking and make an unethical decision. They may also intend to give a more optimistic
description of current realities through financial statements and disclosure operations. For
external auditors, according to ISA 240 the auditor’s responsibilities relating to fraud in an audit
of financial statements, the external auditors need to raise awareness of the possibility of fraud or
error due to COVID-19 and should take prior consider the importance of professional skepticism
when doing audit procedures.
Auditors also may commit fraud of breaching five fundamental principles of the Code of
ethics which are integrity, objectivity, professional competence and due care, confidentiality, and
professional behaviour. Besides, work from home basis also allow auditor commit fraud as they
may not be aware of the changes that need to be made to the design and operation of internal
controls to address risk changes in areas such as credit and liquidity. Employees might find ways
to take benefit of these weaknesses. Besides, employees may be able to manipulate certain
manual processes that may be ignored in a process remote work environment.
The auditor also may indicate a serious fraud risk such as the auditor may feel
challenging in confirming the bank and other balances this is because during MCO period all the
business are not allowed to operate including bank. Management also tend to intercept or change
requests for clarification or response. Besides, auditor may accidentally to use of personal type
bank accounts held in the name of directors or employees instead of corporate type bank
accounts for company business this will leads to your legal liability. Unusual delays by the client
in providing requested information also may occurs due to MCO period all the employees have
restricted by the rules and regulation to stay at home for a period of time.

Question 1(e)
Ensuring on-going communication and collaboration of the engagement team and the
client is critical to complete the audit procedures in time. Information technology allows the
group audit engagement team to access to people, sites and data during this COVID-19 where
travel restrictions are in place. Platforms such as video conferencing helps to keep contact with
not only the team themselves but also the business to perform walkthroughs and interviews.
While tools such as cloud-based auditing software provides the auditors have remote access to
certain systems, files, information or data at homes. For example, sharing the key audit working
papers for team members to evaluate and review by uploading files to validated electronic
Document Management Systems (eDMS), shared drives, secured email or merely screen sharing
for documents that have strict concerns of provisioning (Adamconsulting, 2020, para. 5).
Movchan (2020) stated that this enables a greater proportion of transactions to be tested
compared to the traditional sample testing and thus increases the quality of audit evidence (para.
6). Through artificial intelligence, auditors are able to gain efficiency, provide significant
business insights by delivering higher quality audit conclusions.
Big data analytics has made virtual audits, whether internal or external, to be possible
during COVID-19. Big data analytics allows auditors to tap into different data sources, selecting
audits more accurately based on the risk level in inspecting records and documents. Sample size
can be expanded by including the analysis of entire populations of data relevant to audit.
Besides, they are able to focus only on exceptions by automating the repetitive tasks of an audit
such as vouching (Virtual audit: How it works and why the government might use it, 2018, para.
2). With this open source solution, auditors can better identify fraud or spot operational business
risks without depending on expensive third-party software. However, auditors will have to
perform professional skepticism on the audit evidence acquired electronically to test the
reliability of evidence obtained. For example, review clients’ documents and have question and
answer sessions with the client through secure web portals. The evidence obtained by this means
is considered qualified in accordance with International Standards on Auditing (ISA) 500
(Arnold，2020, para. 7).
The advancement in technology has also helped the auditors in observing the physical
inventory counting process during the COVID-19 pandemic. For instance, live streaming could
help the auditors to observe the inventory count virtually. The auditors could request the
company’s staff to lead a live streaming site walk along the planned route with smart devices,
showing a clear view of the entire warehouse and items being observed. This allows the auditors
to have a clear view on the site conditions even if they are not able to visit the site due to
lockdowns (Virtual Audits: Best Practices to Make Them Work, n.d., para. 7). However, auditors
should examine the reliability of technology used and remain sceptical throughout the entire
stock take process to ensure confidentiality on behalf of clients. In order to ensure the evidence is
appropriate and reliable, auditors need to ensure that the process is well documented. Besides,
more than one auditor should be assigned to enhance the observation capabilities and risk could
be mitigated by screenshot the stocktaking process. Since the physical visit and observation is
impracticable in this period, more items should be tested as a safeguard for the reliability of audit
evidence.
References 

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ACCA Global. (2020). The impact of Covid-19 on Audit and Assurance – challenges
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Malaysian Institute of Accountants. (2009). International Standard of Auditing. ISA

500 Audit Evidence, para 6, 4.

Malaysian Institute of Accountants. (2015). International Standard of Auditing. ISA

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