How Covid19 affects year end audits

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The world over has seen its share of the COVID19 pandemic but the effects on the financial auditing of companies remains a question for some corporate decision makers. In this article Business Innovations Group intends to answer some of the most important questions in the financial auditing sector.

Can year-end audits be postponed till the end of the isolation period?

Section 30 of the Companies Act, Act 71 of 2008, requires a company to prepare annual financial statements within six months after the end of its financial year.

Private companies which are required in terms of the regulations to have their annual financial statements audited (for example, a private company whose public interest score is greater than 350 calculated with reference to its annual turnover, size of workforce and extent of activities), will be required to disclose the remuneration and benefits received by each director or individual holding any prescribed office in the company.

There is no legislative override that allows for the postponement of audits or independent review of the annual financial statements. Companies and close corporations need to be dependent on the various regulators providing relief or information that they will not be penalised or fined for late submission.

Private companies which are required in terms of the regulations to have their annual financial statements audited (for example, a private company whose public interest score is greater than 350 calculated with reference to its annual turnover, size of workforce and extent of activities), will be required to disclose the remuneration and benefits received by each director or individual holding any prescribed office in the company.

What if an audit cannot be completed within the stipulated time frame?

According to the JSE:

– A company is required to publish their results within 3 months, if not then there will be an issue of reminder letters to issuers regarding the submission of their AFS;

– Four months after the listed company’s financial year end: annotate an issuer’s listing on the JSE trading system with a “RE” to indicate that it has failed to submit its AFS timeously;

– If the issuer still does not submit its annual financial statements by the end of the fifth month after its financial year end this will result in suspending an issuer’s listing until such time as the issuer has submitted its AFS

 

Some of the financial auditor’s responsibilities towards a company during financial audit reports should remain as follows:

– Exercise of professional skepticism by auditors in the current environment without being over-emphasized

– Revise risk assessments and modify responses and further audit procedures, based on audit evidence or new information obtained

– Design and perform audit procedures to obtain sufficient appropriate audit evidence

– Provide accounting estimates and related disclosures for responsible management

– In the event that conditions are identified that may cast significant doubt on the company’s ability to continue as a going concern it is  likely that auditors may need to perform the additional procedures, and consider the impact of their findings on the auditor’s report.

– Given the uncertainties, auditors will be challenged to evaluate certain disclosures & audit reports, particularly those related to significant estimates and assessment of going concern.

 

Information & guidelines extracted from:

JSE guidelines: https://www.webberwentzel.com/News/Pages/covid-19-relief-for-jse-listed-companies-in-relation-to-certain-financial-reporting-obligations.aspx

Auditors responsibilities: https://www.ifac.org/knowledge-gateway/supporting-international-standards/discussion/summary-covid-19-audit-considerations

Section 30 of the Companies Act, Act 71 of 2008: https://www.nexia-sabt.co.za/uncategorized/submission-of-company-annual-financial-statements-and-penalties-for-non-compliance/