Auditors and industry organizations have asked to extend the 2019-2020 fiscal year by three months until the end of June amid the coronavirus pandemic (Covid-19).
Industry representatives recently met with officials from the Ministry of Commercial Affairs, requesting, among other things, an extension of the fiscal year on the grounds that “any financial statement prepared for April 2019 to March 2020 will not give a fair picture because it don’t do it. ” represent a complete economic cycle of the entity ”.
The Confederation of Indian Industry (CII) told the ministry: “With the current backdrop of the coronavirus, the entire economy stagnates for at least two quarters, which is a kind of missing quarter for businesses.”
The auditors raised issues such as physical inventory checks, capital assets, balance confirmations, fair value assessments and going concern assessments, which are difficult to perform in the current circumstances.
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An audit report, even if submitted at a later date, may not present a reliable picture if the auditors attempt to verify the key data for the March to June figures. Companies are also struggling to check their inventory due to supply chain disruptions.
“We will have to go back to the stock figures to get the end of year figures. This is different from the physical verification done at the end of the year. Control tests carried out later, which are postponed until the end of the year, also have their challenges. If the exercise is extended, this could help companies to focus their efforts on other priority areas at this stage, and auditors will also be able to obtain the appropriate evidence, “said Sanjeev Singhal, partner, SR Batliboi & Co.
Over the past few days, government and regulators have taken steps to ease the compliance burden for businesses, by extending filing deadlines and removing late fees until June of this year.
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The Securities and Exchange Board of India last week authorized listed companies to file their fourth quarter and annual financial results by June 30 and has also extended the filing date for quarterly corporate governance reports by one month. ‘company.
However, audit firms may not be able to put in place adequate checks and balances when locking in when compiling their report.
Deloitte India plans to issue guidelines to businesses so that they can provide a minimum of basic information that can assist in financial reporting.
Many experts from the company said they had difficulty preparing their financial statements, mainly related to areas requiring management. These may include prospective estimates of cash flow, recoverability and impairment of assets, contract modifications, etc.
“Regulators may consider proposing ad hoc flexibility related to accounting. From an audit perspective, the rigor will certainly increase because of these uncertainties, auditing management estimates and judgments will pose new challenges, “said Khazat Kotwal, partner, Deloitte India.
The physical presence of the auditors is generally required not only to check the inventories but also to close the bank balances, the minutes of the meetings of the board of directors, etc.
Companies are now providing electronic evidence which may be less reliable. The auditors must give their assessment of the internal control of financial information. Many companies have rolled out disaster recovery plans, triggering alternative processes such as increasing the decision-making powers of an individual or a group of affected people.
“Companies and auditors need to take into account changes in a company’s internal control environment and provide appropriate risk assessments and controls to deal with additional risks in the current scenario,” said Kotwal.
Another concern is to assess whether the business is in operation. The board is required to indicate the impact of the coronavirus in its report.
“The auditor’s responsibility is to review the appropriate evidence in this regard. However, the auditor cannot predict future events and therefore his report cannot be considered as assurance in the absence of evidence of significant uncertainty as to the ability of the company to continue its activity ” said Ashok Haldia, former secretary of the Institute of Chartered Accountants. of India (ICAI).
Since many audit procedures started at the end of February, it was suggested to conduct a limited audit review for 11 months ending in February 2020.
Earlier this week, the government postponed the implementation of the 2020 Business Audit Reporting Ordinance to 2020-2021, thereby reducing the workload of auditors.
The ICIA plans to publish guidelines for auditors to take into account the disruption to businesses caused by the pandemic.
WHAT HOLDS THEM?
Challenges faced by auditors
* Physical inventory check
* Confirmation of bank balances
* Fair value measures
* Assessment of the nature of operating problems
* Impairment of assets