Joint Panel Discussion IAPI – ICAEW on February 2, 2021:

Improving Audit Quality and Culture

During Covid-19 and Beyond

Presented By:
Kusumaningsih Angkawidjaja
Indonesian Auditing and Assurance Standards Board 1

© 2021 Institut Akuntan Publik Indonesia (IAPI) 1

 BACKGROUND

The outbreak of COVID-19 has caused a significant deterioration in economic

conditions for many companies. The impact of COVID-19 on businesses and the wider
economy are significant.

These economic and business impacts may have significant and pervasive financing
reporting implications on financial statements, likely resulting in increased complexity,
subjectivity and uncertainty as well as impacting recognition, measurement,
presentation and disclosures.

Increasing restrictions on travel, meetings and access to client locations have caused
auditors facing practical difficulties in carrying out audits, including obtaining sufficient,
appropriate audit evidence to support our auditors’ opinion.

These underlying situations must not undermine the delivery of high quality audits
to instilling confidence and public trust.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 2

 AREAS WHICH REQUIRE SPECIAL ATTENTION

1. Assessing Risk of Fraud (SA 240)

2. Communication with Those Charged of Governance (SA 260)
3. Identifying and Assessing the Risk of Material Misstatements and Materiality (SA 315 & SA 320)
4. Obtaining Sufficient and Appropriate Audit Evidence, Evaluation of Management’s Expert (SA 500)
5. Physical Inventory Observation (SA 501)
6. Auditing Accounting Estimates (SA 540)
7. Subsequent Events (SA 560)
8. Going Concern (SA 570)
9. Written Representations (SA 580)
10. Auditing of Group Financial Statements (SA 600)
11. Using the Work of an Auditor’s Expert (SA 620)
12. Forming an Audit Opinion ( SA 700 Series)

© 2021 Institut Akuntan Publik Indonesia (IAPI) 3

 RISK ASSESSMENT – UNDERPIN OUR AUDIT
• Identifying and assessing risks may be more challenging due to uncertainties.
• New risks may emerged as responses to COVID-19 evolve.
Challenges • Initial risk assessment may require revision; thus initial response to assessed risk
may not be adequate.
• More frequent risk assessment is needed in this evolving environment.
• In today’s environment when the uncertainty is high; there’s increased risk from
going concern, valuation and impairment.
• Previous benchmarks used for determining materiality may not be appropriate.

• Conduct robust and iterative risk assessment process. More factors will need to be
considered during risk assessment.
• Assess the changed control environment and client’s relevant controls.
• Early and frequent communication with management and the audit committee. Practical
Consideration
• Materiality assessments may need to be revised as the audit progresses.
• Exercising professional skepticism to the judgements and assumptions used by
management and when gathering audit evidence is crucial.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 4

 RISK OF FRAUD
• Heightened risk of fraud may exist due to the COVID-19 pandemic.
• COVID-19 crisis has created potential sources of pressure, opportunity and rationalization:
o Changed client working practice and protocols as well as deviations from normal
Challenges checks and controls present greater opportunities for fraud.
o Declining operations, financial uncertainty and reduced job-security have created
financial pressure.
o The uncertainty has created an environment in which it is easier for fraudsters to
rationalise deviant behavior.
• COVID-19 presents an increased risk relating to cyber fraud.
• Robust fraud risk assessment led by the engagement partner.
• Identify new financial statement level or assertion level risks due to fraud.
• Perform additional procedures to respond to the increased risks of management override
of control.
• Consider it is appropriate to test journal entries and other adjustments throughout the Practical
period, in addition to testing at the end of the reporting period. Consideration
• Testing anti-fraud controls and identify deficiencies
• Exercising professional skepticism when performing audit procedures.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 5

 ACCOUNTING ESTIMATE – REQUIRE PROFESSIONAL
JUDGEMENT AND SKEPTICISM
• Some entities may not have faced an environment of heightened estimation
uncertainty like this before and may need to establish more robust approaches for
calculating estimates.
Challenges
• Auditing accounting estimates in this high uncertainty and high volatility
environment carry unique challenges for auditors.

• Assessing and challenging the management in selection of model/methods,

assumptions and data in making estimates. Thoroughly stress testing management’s
analysis and assumptions.
• Assess the necessity of additional auditor expert, e.g. a valuation expert.
• As the audit progresses, revisiting risk assessment and responses where necessary.
Practical
Consideration • Being alert to an increased risk of fraud or management bias, and acknowledge
the importance of maintaining professional skepticism throughout the audit.
• Early and more frequent communication with management and TCWG.
• Assessing the transparency of management’s disclosures on the level of uncertainties.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 6

 GOING CONCERN
• The significant deterioration in economic conditions and increased uncertainty with
respect to the economic outlook mean it is more likely that management’s going concern
assessment will require significant judgement, may require disclosures in the financial
Challenges statements and may have implications for our audit report.
• Forward looking assumptions such as revenue projections or future cash flow may be
difficult to make.
• All these factors may make it more difficult for the auditor to assess management’s going
concern assessment and to audit management plan if this plan is meant to mitigate the
substantial doubt.
• Alert management and TCWG at the soonest that an appropriate assessment is necessary
both to support the use of the going concern basis of accounting as well as to enable us to
evaluate management’s assessment.
• It is critical for auditors to understand what impacts current events and conditions are
Practical expected to have on an entity’s operations, forecasted cash flows as well as debt
Consideration covenant compliance and sufficient liquidity.
• Exercising professional judgement and skepticism in assessing the management’s going
concern assessment and its plan to mitigate substantial doubt.
• Consider modification to the auditor’s report as needed.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 7

 SUBSEQUENT EVENT
• The COVID-19 outbreak is likely to continue and evolve rapidly. This has triggered a
series of events rather than a one-off event; thus information relating to the outbreak will
continue to emerge after the date of the auditors’ report. The risk of material
Challenges misstatement relating to subsequent events are likely to be higher than in prior periods.
• In the current environment, management’s financial reporting process will probably
need to be more robust than in prior periods with respect to identifying subsequent
events and evaluating whether the events are adjusting or non-adjusting.

• Because the impacts of COVID-19 could be significant and pervasive, exercise

professional skepticism if management has not identified any subsequent events.
• Procedures to identify subsequent events include:
o Obtaining an understanding of procedures to identify subsequent events; Practical
o Inquiry of management and TCWG; Consideration
o Reading available minutes of meeting; and
o Reading the latest subsequent interim financial statements, if there are any.
• Potential subsequent events arising from COVID-19 may include significant events related to
financing matters, changes in economic and trading conditions, and other matters.

© 2021 Institut Akuntan Publik Indonesia (IAPI) 8

 NEW WAYS OF WORKING

• Sudden shift to remote operations for both the audit teams and audit clients has
changed the logistics of obtaining information and data as well as the process of
supervision and review during the engagement.
Challenges
• Exercising professional scepticism is more challenging in the absence of face to
face interactions in person with audit client.

• Proper planning the audit has become much more important.

• Auditors need to consider alternative means of obtaining audit evidence.

• Need to be more sceptical in assessing the authenticity of documents
Practical
Consideration • More and different types of audit evidence may be required.
• Observing reactions and body language in response to inquiries, including fraud
inquiry.
• Emails need to be followed up with live conversations, i.e using video as practicable

© 2021 Institut Akuntan Publik Indonesia (IAPI) 9

 THANK YOU

KA/fl

© 2021 Institut Akuntan Publik Indonesia (IAPI) 10