Auditing public organisations during Covid-19

Covid-19 might have consequences for the audit of public organisations' accountability statements, and for the messages included in their audit reports. Todd Beardsworth (Assistant Auditor-General, Audit Quality) sets out some questions for organisations to consider, and looks at how Covid-19 might affect this year's audit reports.

Premises closedEvery public organisation is different. For-profit public organisations, for example, face different challenges to those whose main goal is to provide goods and services for a community or social benefit.

One thing that unites the entire public sector is the fact that Covid-19 has affected, and will continue to affect, every aspect of their work, and in different ways. It’s certainly affected every part of ours.

As you prepare your financial statements for the end of the year, a couple of questions at the front of your mind should be: how do you communicate this in your annual report? And what will this mean for the audit report?

The short answer is: In this situation, transparency is especially important. Your stakeholders need to know how your financial and non-financial performance has changed because of Covid-19.

The longer answer follows, but is pretty useful for those preparing financial statements.

With the end of financial year approaching for many public organisations, auditors are required to form an opinion as to whether your accountability statements fairly reflect the activities during the reporting period.

Auditors also need to form an opinion on whether your accountability statements fairly reflect your organisation’s financial position at the end of the year. The auditor’s opinion is based on the evidence that’s available to support the information in your accountability statements.

What does this mean for audit reports?

The fallout from Covid-19 might mean auditors need to include additional comments in their audit report to explain the impact. Ideally, your accountability statements will beat us to it by including disclosures that explain any uncertainties. Your stakeholders will appreciate you being upfront and clearly explaining the reasons for the uncertainties. So do we. It will enable your auditor to draw attention to your disclosures in their audit report, which is always better than having to search out and raise them themselves.

Additional comments can be added for several reasons.

Covid-19 might significantly impact your organisation’s ability to generate revenue, which might raise issues about going concern, asset values, and impairment. Where uncertainty exists about such matters, the auditor will likely make a note of this in their report.

Some organisations might have needed to perform extra services at short notice because of Covid-19. The need to urgently respond to Covid-19 issues will not always allow you to test the systems and processes to the extent you would have liked. Auditors will make every effort to ensure they’re satisfied about the integrity of these systems and processes. This is important to auditors, and they will draw attention to shortcomings that get in the way of this satisfaction. Disclosures in your accountability statements that explain any extra services you provided, and the significant controls needed to support the integrity of those services, is appreciated by auditors and other readers alike.

Conversely, Covid-19 might have affected your ability to fully provide all your services as intended.
This could mean you missed some of the performance targets established at the start of the year, and which are reported in your accountability statements. Not meeting performance targets established before the Covid-19 pandemic is unlikely to be referred to in the auditor’s report. However, disclosures that explain the reasons for significant differences between actual and reported performance are a most useful enhancement to your accountability statements.

In some cases, your organisation might have been unable to use normal systems and processes to carry out your activities. If the alternative processes used did not give the auditor confidence about their integrity, they may need to say so in their report. Disclosure in the accountability statements about why normal systems and processes were not followed would be helpful.

In these uncertain times, it is hard to guess what else will happen as a result of Covid-19. The above is not a complete list of the matters that may lead to additional commentary in your audit report; we can be just as surprised as you by developments.

We encourage you to keep talking to your auditor about anything unexpected that might affect your accountability statements, and when making disclosures, be as open and transparent with your stakeholders as you can.

Jose R Oyola says:
May 28, 2020 10:29 PM
Good insights, but all negative. Auditors need to provide balanced advice to NZ managers. Let’s ask them to include insights that show their positive responses to COVID19. For example, what information systems were in place that allowed Govt leaders to act promptly to close the borders and declare effective social distancing rules? What communication systems channels and messages to the public proved most effective? The world is wants to know why NZ leaders utilized best practices that minimized deaths and economic damages, in contrast to other OECD members. Annual reports can be a permanent historical source of best practices to manage a pandemic.
Todd Beardsworth says:
May 29, 2020 11:24 AM
Kia ora Jose
Thank you for your comment and the points you've raised. Public organisations should take the opportunity to use their accountability documents to explain how they responded to the challenges presented by COVID-19, including sharing what they already had in place and what they've learned from it. Our job is to inform people if the information they’re looking at can be trusted, as well as sharing insights and guidance on what “good” looks like. Often this is gleaned from our interactions with organisations during the audit process.
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