HINESH R. DOSHI & CO.

LLP

AUDITOR'S REPORTING
KEY AUDIT CONSIDERATIONS
AMID COVID-19

HINESHRDOSHICOLLP.COM
 Impact of Coronavirus on Financial
Reporting and Auditor's consideration

27th March, 2020

AUDITING
GUIDANCE
ON COVID-19
Going Concern - Key Considerations
for Auditors amid Covid-19

ISSUED BY 10th May, 2020

AASB
Physical Inventory Verification-
Key Audit Considerations amid
Covid-19
13th May, 2020

KEY AUDIT
CONSIDERATIONS AMID
COVID-19

SA 700(Revised) - Auditor’s responsibility for

forming an opinion on financial statements.
SA 705(Revised) - Auditor’s responsibility to issue
appropriate report in circumstances when, in
forming opinion in accordance with SA 700(Revised),
auditor concludes that modification to auditor’s
opinion on financial statements is necessary.
SA 705(Revised) - Auditor to modify opinion in
auditor’s report:
a) If auditor concludes that, based on audit evidence
obtained, financial statements as a whole are not
free from material misstatement; or
b) If auditor is unable to obtain sufficient
appropriate audit evidence to conclude that
financial statements as a whole are free from
material misstatement.
Responsibility heightened in present situation,
where COVID-19 and its related preventive measures,
such as lockdown and travel restrictions by
Government of India have impact on business
operations.
PAGE 1
HINESH R. DOSHI & CO. LLP
 MANAGEMENT'S
RESPONSIBILITY
A. To make a detailed assessment (to the
extent possible based on information
available) of impact of COVID-19 on :
The items of financial statements;
Components of the financial statements;
Disclosures in financial statements ;
(e.g.appropriateness of carrying values of
goodwill and other intangible assets, fair
valuation, impairment of assets, etc.)
Appropriateness of going concern basis of
accounting.
B. Includes making appropriate
adjustments to financial statements.
HINESH R. DOSHI & CO. LLP
C. Ensuring necessary disclosure, such as :
Disclosure of subsequent events, risks and
uncertainties,
Disclosure as to how events and conditions
may impact future operating results, cash
flows and financial position of the entity.
Disclosure may include business risk factors
and management's discussion & analysis of
results, liquidity and capital resources. (SA
720(Revised), “The Auditor’s Responsibilities
Relating to Other Information”)
D. Management may conclude of no impact
on operations of entity carrying on business of
essential commodities, however related
factors, such as possible disruption of supply
chain, availability of customers for its
commodities, etc to be considered and
informed decision to be taken whether such
operations are impacted or not.
PAGE 2
 AUDITOR'S
RESPONSIBILITY
A. Auditor to consider the following while
carrying out audit:

Modification to auditor’s opinion due to material

misstatements or inability to obtain sufficient
appropriate audit evidence [SA 705(Revised)].
 
Inclusion of ‘Material Uncertainty Related to
Going Concern’ section in auditor’s report [SA
570(Revised), Going Concern].
 
Inclusion of an Emphasis of Matter paragraph
and/or Other Matter paragraph in auditor’s
report [SA 706(Revised), Emphasis of Matter
Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report].
 
Inclusion of key audit matters in auditor’s report
[SA 701, Communicating Key Audit Matters in
the Independent Auditor’s Report].

B. Auditor to consider factors in auditor’s

reporting in respect of impact of COVID-19
on financial statements of entity.

whether impact on business operations/ whether impact on going concern basis of

revenues/ cash flows etc. of entity for the accounting of financial statements
year (including fair valuations, estimates, assessed to conclude on :
realizability, discount rates used, etc.)
appropriately assessed by management. (a) appropriateness of use of going concern
  basis of accounting.
whether events occurring subsequent to
year-end but before issuance of auditor’s (b) existence of material uncertainty
report, considered. related to going concern.
 
whether adjustments required to financial whether appropriate disclosures made in
statements; if yes, whether appropriately financial statements regarding impact and
accounted for. management’s assessment including
  impact on going concern basis of
accounting.

whether sufficient and appropriate audit

evidence available for auditor to be able to
assess the above factors.

The above factors are indicative and not exhaustive and auditor to maintain professional
skepticism and apply professional judgment on case to case basis and also consider other factors
as applicable.
HINESH R. DOSHI & CO. LLP PAGE 3
 IMPACT OF COVID-19
ON AUDITOR'S REPORT

(A) Modification of Auditor’s Opinion [SA

705(Revised)]

The auditor’s opinion need to be modified in

Auditor to modify opinion on financial
light of inaccurate and incomplete disclosures
statements in following circumstances:
considering impact of Covid-19.

Improper accounting/ inadequate disclosures:

Modification could be a qualified or adverse
opinion, depending on materiality and
Consideration to be given to misstatements that
pervasiveness of impact [SA 705(Revised),
may occur due to :
paragraphs 7, 8].

a) Failure to recognize adequate impairment of

assets;

b) Inadequate provisions for obligations;

c) Necessary accounting adjustments not made

appropriately;

d) Inadequate or inappropriate disclosures

regarding impact of COVID-19.

Inability to obtain sufficient appropriate

audit evidence:

a) Modification to auditor’s opinion

(qualification or disclaimer of opinion, as
appropriate in circumstances) necessary if
auditor unable to obtain sufficient
appropriate audit evidence to conclude that
financial statements are free from material (B) Going Concern Considerations [SA
misstatement [SA 705(Revised), 570(Revised)]

Lockdown restrictions may impact business

b) Auditor unable to obtain sufficient
operations and result in events or conditions
appropriate audit evidence from alternative
that may cast significant doubt on entity’s
audit procedures possibly due to lockdown,
ability to continue as a going concern.
social-distancing or work from home
 
restrictions. It may affect:
When such events or conditions are identified,
auditor to seek sufficient appropriate audit
i. Auditor’s opinion on the financial
evidence to determine whether or not a
statements.
material uncertainty exists and assess whether
use of going concern basis of accounting is
ii. Auditor’s opinion on internal financial
appropriate and report accordingly. (“Going
controls .
Concern - Key Considerations for Auditors amid
COVID-19” issued by the Auditing and
iii. Auditor’s reporting on CARO 2016.
Assurance Standards Board of ICAI)

HINESH R. DOSHI & CO. LLP PAGE 4

(C) Including an Emphasis of Matter Paragraph
in Auditor’s Report:
Emphasis of Matter (EOM) paragraph may be
included in auditor’s report based on
professional judgment of auditor where
substantive COVID-19 related disclosures in
financial statements are made by management
of entity and auditor satisfied that these
disclosures are appropriate and adequate.
SA 706(Revised), “Emphasis of Matter
Paragraph” defined:
“A paragraph included in auditor’s report that
refers to a matter appropriately presented or
disclosed in financial statements that, in
auditor’s judgment, is of such importance that it
is fundamental to users’ understanding of the
financial statements.”.
Due to evolving circumstances due to Covid-19,
management’s assessment of impact on the
current or subsequent period is dependent
upon circumstances as they evolve; and
consequently, auditor shall decide on adequacy
of disclosures made by management and if
disclosures are adequate, auditor may include
an EOM paragraph to highlight the
uncertainties relating to future and to draw
attention of users of financial statements.
 
HINESH R. DOSHI & CO. LLP
Auditor may include an EOM paragraph in
following situations while assessing impact of
COVID-19 on entity and impact on financial
statements:
An uncertainty relating to future outcome of
exceptional litigation or regulatory action.
A significant subsequent event that occurs
between date of financial statements and
date of auditor’s report.
A major catastrophe that has had, or
continues to have significant effect on entity’s
financial position.
For example, the auditor should assess the
impact of COVID-19 on aviation, hospitality
industries, etc
Example of EOM wordings for auditor’s report
“Emphasis of matter — Effects of COVID-19
We draw attention to Note X in the financial
statements, which describes the economic and
social [consequences/disruption] the entity is
facing as a result of COVID-19 which is
impacting [supply chains / consumer demand/
financial markets/commodity prices/ personnel
available for work and or being able to access
offices]. Our opinion is not modified in respect
of this matter.”
PAGE 5
(D) COVID-19 and Key Audit Matters
Impact of COVID-19 on specific areas of financial
statements needs to be evaluated for  purpose
of reporting KAM.
Whether impact of COVID-19 is a key audit
matter (KAM) in an audit.
Example:
a) Physical verification of inventory using
alternative audit procedures may involve more
effort vis-a-vis in a non-COVID-19 scenario.
 
b) Auditor would be more skeptical about
impairment assessment in current scenario.
 
Auditor is not performing procedures to assess
impact of COVID-19 itself rather procedures are
being performed in respect of specific items of
financial statements or assumptions (for
example going concern, impairment, expected
credit loss, valuation etc.) and thus that
particular item/assumption would qualify to be
a KAM, where the criteria set out in SA 701 are
met.
 
 
(E) KAM Related to Going Concern
Auditor to identify KAM related to going
concern matters to be reported in KAM section
of auditor’s report, when he:
 
i. Identifies events and conditions that may cast
significant doubt on entity’s ability to continue
as going concern; and
 
HINESH R. DOSHI & CO. LLP
Points to take care when drafting KAM in
auditor’s report.
1. Auditor should not use generic / vague
language;
2. Auditor to use entity specific & clearly
articulated language to explain impact of
COVID-19;
3. Language of KAM to bring out clearly
complexities arising from COVID-19 on
verification aspects of financial statements;
4. Matter to be considered for inclusion as KAM
only when auditor concludes that it does not
warrant modification of auditor’s opinion and
does not indicate material uncertainty related
to going concern.
In some cases, matter determined to be KAM in
accordance with SA 701 may also be, in auditor’s
judgment, fundamental to users’ understanding
of financial statements i.e., could also be reported
as EOM paragraph.
If auditor wishes to highlight or draw further
attention to KAM, auditor may do so by
presenting matter more prominently than other
matters in key audit matters section of auditor’s
report (e.g., as the first matter) or by including
additional information in the description of the
key audit matter to indicate importance of the
matter to users’ understanding of financial
statements.
ii. Concludes that no material uncertainty exists;
and
iii. Concludes that disclosures related to those
events or conditions are adequate.
In such cases, auditor to describe identified
events or conditions disclosed in financial
statements that were focus of auditor’s
attention, such as
a. Substantial operating losses,
b. Available borrowing facilities
c. Possible debt refinancing,       
d. Non-compliance with loan agreements and
related mitigating factors in accordance with SA
701.
PAGE 6
(F) Auditor’s Responsibilities w.r.t discussion
about COVID-19 included in Other Information
in Entity’s Annual Report:

Auditor to read other information included in
entity’s annual report and consider whether
there is material inconsistency between other
information and
(a) audited financial statements; and
(b) auditor’s knowledge obtained in audit, in
context of audit evidence obtained and
conclusions reached.
Auditor to pay particular attention to
information provided with regard to impact of
COVID-19 may have on entity and consider
whether there is new or updated information
to be disclosed in financial statements or may
affect audit or auditor’s report.
Auditor to also consider whether the other
information contradicts any aspects of 
auditor’s understanding of impact of
pandemic on entity’s business or operations.
 
Auditor required to read and consider other
information when it becomes available, after
date of auditor’s report.
Auditor to assess effect on auditor’s report and
deal in accordance with SA 720(Revised) if
auditor identifies a material misstatement in
other information.

Other information that accompanies

financial statements may be expected to
include discussion on risks associated with
COVID-19 pandemic that provides entity’s
additional perspectives or details beyond
information disclosed in financial
statements.

HINESH R. DOSHI & CO. LLP PAGE 7

 IMPACT ON REPORTING UNDER
CARO 2016

Illustrative list of the clauses of CARO 2016 Clause 3(viii): Default in repayment of
expected to be impacted by COVID-19 for loans or borrowing to a financial
comments of the auditor: institution, bank, Government or dues to
debenture holders.
Clause 3(ii): Physical verification of  
inventory. Auditor to make a factual statement in his
  report, where the company has exercised
Auditor’s opinion to be suitably modified option for moratorium period for
where auditor unable to obtain sufficient repayment of term loans / working capital
appropriate audit evidence. Auditor to financing facilities.
comment on this clause, where  
appropriate. Where the company has made payment
  within such extended due dates, it does
Clause 3(vii)(a): Reporting on deposit of not constitute a non-compliance and
undisputed statutory dues. accordingly not required to be reported
  under this clause.
Commenting in respect of this clause to
reflect factual position regarding extension
of date granted by relevant authorities for
payment of such dues.
 
Where company has made payment within
extended due dates, it does not constitute
a non- compliance and not required to be
reported. However, if there is no extension
of due date and an option has been given
to make payments at a later date upon
payment of interest and penalty, it should
be reported as default.

HINESH R. DOSHI & CO. LLP PAGE 8

 IMPACT ON REPORTING
ON INTERNAL FINANCIAL
CONTROLS W.R.T
FINANCIALS

Section 143(3)(i) of the Companies Act, 2013 –

Auditor’s report to state whether company

has adequate internal financial controls with
reference to financial statements in place and
operating effectiveness of such controls.

Internal control testing is an integral part of

audit procedures, as this determines level of
substantive procedures to be carried out by
auditor.

Rewriting audit plan to address changes in

KEY FACTORS TO BE internal control framework, including those
CONSIDERED WHILE relating to design and operation of internal

APPROACHING THE controls and review controls.

 
AUDIT Testing design and operating effectiveness
of updated controls framework including
Non-remediation of material weakness
segregation of duties in line with
noticed during the period for which
requirements set out in the “Guidance Note
internal control testing already carried out.
on Audit of Internal Financial Controls over
    
Financial Reporting” with help of experts.
Inquiries on change in company’s mode of
 
carrying out operation in response to
Evaluating availability of electronic and
COVID-19 impact.
digital evidence made available by
management, and review controls,
Impact of changes to auditor’s
specifically for reliability, security and
understanding of company’s system of
storage of such evidence.
internal control, including:
 
1. The control environment.
Remain alert to possibility of lapse of
2. Changes to planned reliance on controls
controls and fraud.
in determining responses to identified
 
risks of material misstatement.
Communication with those charged with
 
governance at every stage of audit
including implications on audit of financial
statements and reporting thereon.

HINESH R. DOSHI & CO. LLP PAGE 9

 No concerns noted by auditor with regard
REPORTING ON INTERNAL to design and operating effectiveness of
FINANCIAL CONTROLS internal controls: Under these
W.R.T. FINANCIAL circumstances, auditor to include a cross
STATEMENTS reference in opinion on internal financial
controls to the Emphasis of Matter
paragraph included in the main audit
The following scenarios are envisaged:
report with regard to COVID-19 assessment.

Main audit opinion is not modified;

Where main audit opinion is modified in
Emphasis of Matter paragraph included to
respect of any matter (including that
highlight impact of COVID-19 assessment;
relating to COVID-19); auditor to evaluate
auditor considered key factors in testing
key factors mentioned above, and
design and operating effectiveness of
determine whether modification also leads
internal controls with reference to financial
to modification of report on internal
statements, and:
financial controls and where applicable,
 
modify the report on internal financial
Material weakness identified in design or
controls accordingly.
operation of internal controls [and/or]
 
;material weakness identified earlier
Where auditor unable to obtain sufficient
remains unremedied [and/or] ;there is
appropriate audit evidence to form an
restriction on scope of engagement.
opinion on design and operating
effectiveness of internal financial controls
In such cases, auditor to modify opinion on
with reference to financial statements,
internal financial controls; evaluate impact
auditor should issue a disclaimer of
of such modification on main audit report
opinion.
and as appropriate, modify auditor’s
opinion on financial statements as well.
      

HINESH R. DOSHI & CO. LLP PAGE 9

 HINESH R. DOSHI & CO. LLP

Hinesh R. Doshi & Co. LLP

Chartered Accountants

3rd Floor, Palai Plaza, Swami Gyan Jivandas Marg,

Dadar (East), Mumbai.
+912266008100/111
info@hineshdoshi.com/ hinesh@hineshdoshi.com
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