The disruption caused by the Covid-19 pandemic is already having a significant impact across the audit profession, and on smaller companies in particular, research by ACCA has found
Although digital advances continue to influence how audits are conducted and how evidence is gathered, as well as aspects of the reporting process, for many accountancy firms the crisis is creating a systemic shock to normal client engagement activities, the professional services body said.
ACCA’s global poll of around 2,000 public practice and audit leaders found 53% of respondents said they were experiencing pressures completing client services work, and over a third (36%) said they faced an inability to meet reporting deadlines - a point recognised in many jurisdictions where reporting deadlines have been flexed.
A quarter reported experiencing difficulties in gathering audit evidence, and 27% said they saw an increased audit risk relating to valuation of assets, completeness of liabilities or going concern issues.
On the positive side, respondents highlighted significant opportunities for providing enhanced insights and value to audited entities through the audit process.
Mike Suffield, director – professional insights at ACCA said: ‘From increased pressure to complete audit work to issues in getting audit evidence, and very sensitive judgments in areas such as going concern, auditors will need to re-evaluate how they undertake normal auditing activities.
‘There are challenges ahead, but respondents also spoke openly about opportunities.’
Suffield also cautioned that accountants and the businesses they advise also need to focus on developing risks across all sectors.
‘Even in the face of Covid-19, businesses large and small will still face existing risks such as cybersecurity. We need to remember that different ways of working and strategic reactions could change these risks or even introduce new ones.
‘Ensuring that risks continue to be managed, both specifically in response to the crisis and more generally, is essential,’ he said.
The global survey of over 10,000 ACCA members and stakeholders working in a wide range of organisations revealed the outbreak is particularly challenging for smaller organisations compared to their larger counterparts, with all sectors reporting distinct concerns about cash flow and growth.
Among business leaders of the smallest organisations, with fewer than 200 employees, 85% expect year-on-year revenue to be lower than the previous year, and 86% expect year-on-year profit also to be lower.
ACCA’s data shows almost one-third of organisations do not have appropriate business continuity plans (BCP) in place to respond effectively to the crisis.
This is a particularly acute issue for smaller organisations, with 38% of those suggesting they do not have a continuity plan in place compared with 15% of firms with 1,000 or more employees.
Consistently, the biggest impact identified across every sector is reduced employee productivity. The public sector, at 69%, cites this issue most often, compared with 59% in not for profit, 55% in the corporate and financial sectors, and 50% in academia.
Cash-flow worries across the sectors vary: 39% say this is a concern in the corporate and financial world, compared with only 26% in the public sector. Again, cash flow, alongside broader challenges relating to reduced customer demand and supply chain disruptions, are more acute for smaller organisations.
When leaders were asked if they had performed a reforecast of their organisation's financial outlook for 2020, since the outbreak of Covid-19, only 35% in the public sector said they had, compared with 55% in the corporate sector and 47% in academia.
Alex Metcalfe, head of public sector policy at ACCA, said: ‘Public sector finance professionals need to provide timely financial analysis, such as cash flow forecasts, to support the critical public services being delivered during this crisis.
‘However, the research reveals that public sector members are less likely than peers in other sectors to have completed a financial reforecasting following the outbreak of the pandemic.
‘The strength of the recovery will depend on rapid and effective government responses, with professional accountants having a critical role to play in supporting this response through the provision of timely information and analysis.’
Jamie Lyon, ACCA’s head of business management, added: ‘Our report also reveals small but growing concerns about financing and debt obligations, which we could expect to rise in the coming weeks.
‘The immediate picture is of focusing on short-term survival, which may worsen over the coming weeks and months.
‘Many respondents see these issues threatening the very viability of their organisations over the next six months. The pressure will be on governments globally to sustain these organisations, and especially SMEs.’