1st December 2022
It has been an interesting year for all of us, aside from getting used to the ‘new normal’ of hybrid working, there have been a number of developments to auditing standards and, accordingly, the required audit approach, which will change the way in which you prepare for a statutory audit. Chrysanthi Herodotou, Senior Manager, covers the key considerations below.
1. Communication with your auditors
Regular and clear communication with your auditors before, during and after the audit process will help it run smoothly and effectively. The audit team will continue to use Inflo software for file sharing and for uploading deliverables lists ahead of the audit. Getting as much of this information upfront will enable the team to ‘hit the ground running’ during the scheduled audit fieldwork.
The earlier your finance team is able to prepare balance sheet reconciliations and finalise the draft year-end numbers, the better. This will put you in a strong position to identify any anomalies early on and allow good time to obtain accounting advice if necessary.
In relation to your CASS audits, it would be useful to have an update on how IFPR reporting has gone this year along with an update of any unusual correspondence, breaches or complaints that could potentially impact our risk assessment.
2. New auditing standards
Two revised auditing standards have been issued, ISA 315 and ISA 240, impacting audits for periods commencing on/or after 15 December 2021.
ISA 315 is more likely to noticeably impact your audit as it relates to ‘Identifying and Assessing the Risks of Material Misstatement’. It is very much a planning impact, as it is aimed at focusing our risk assessment. As auditors we are now required to obtain a better and more detailed understanding of the entity’s IT control environment and general controls. The FRC has specifically noted it is in response to the ‘evolving business environment’.
In order to assist with this new requirement, our audit teams are transitioning to Inflo Workpapers for all audits for periods ending 31 December 2022 onwards. This will assist with the increased complexity and requirements around documentation for this revised ISA.
3. Timetable and service provider liaison
Once we have a mutually agreed audit timetable, it is important to notify any third-party service providers of the relevant deadlines, including:
- Payroll providers
- Corporation tax compliance advisors
- Fund administrators
This will ensure that they will be ready to provide any documentation required for the audit and help prevent delays. Note: where haysmacintyre also provide these services there is no need to communicate these deadlines as we will do this internally on your behalf.
4. Cost of living and current economic impact
One of the key areas of an audit is management’s assessment of going concern. Within the current economic climate this is more important than ever. Those charged with governance will need to consider the impact of the wider economic factors on the financial statements and more specifically for evidence of any of the following:
- Going concern implications, including impact on capital adequacy and liquidity for FCA purposes
- Impairment of investments, properties, intangibles
- Allowance for potential irrecoverable debt
- Fair value adjustments
- Increased cost of borrowing for external finance and associated covenant implications
The going concern assessment should consider all relevant information about the future which is at least, but not limited to, 12 months from the date the financial statements are approved. This should include detailed budgets and cash flow forecasts.
The assessment as to whether an entity is a going concern takes into account events that occur after the end of the reporting period. Where management are aware of material uncertainties that may cast doubts on the entity’s ability to continue as a going concern, the entity should make full disclosure of the material uncertainties within the financial statements.
Having these recommendations in mind and starting preparation before the audit process begins will ensure you are in a favourable position for the upcoming audit. We look forward to working with you in the coming months.