Auditing Case Solution & Answer

 Auditing Case Solution

Impact of Covid-19 on the planning process of audit

Owing to the situation of Covid-19, there is a likelihood that the auditor would be unable to perform planned audit procedures, receive original documents, and to be able to receive authentication of the documents remotely. Such scenarios might lead towards the resource constraints, information limitation, or time or budget pressures for the auditor, eventually leading to the inability of auditors to exercise an appropriate level of professional skepticism. The unavailability of the company’s key personnel, disruption in business processes, inaccessible or incomplete data together with lack of adequate staff at the end of the auditor, would demand a revisit to the audit nature and approach of the auditor, timing and extent of the audit procedures.

Additionally, the auditor might be concerned about the immateriality level because of significant adjustments embedded in the financial statement of the current period. During the pandemic, stay-at-home policies prevent auditors from conducting physical counts, inability to gain an understanding of the internal controls, including: the understanding of how the employees of an organization process transaction plus testing to evaluate whether the internal controls are effective and adequately designed.Thus, shifting to a remote audit format requires flexibility and auditor would be required to expand the useof remote audit procedures by making the use of technological advances, such as:teleconferencing, smart devices, cloud storage, and secure-data-sharing platforms.

Virgin Australia is a going concern as per ASA570

Paragraph 10 of ASA 570 (ASA 570 AUASB 2015b) requires the auditors to effectively assess as well as evaluate the risk with regards to the going concern of the company. One of the major risk factors that Virgin Australia is facing, is related tothe ongoing concern regarding high debt to equity ratio, prolonged losses as well as poor or ineffective performance in relation to its major competitors in the market. Hence, the mitigating factor which could be used by auditors in an attempt to offset the risk of going concern, includes the ability to raise financing through the sale of shares or borrowings, significant cash flows as well as the ability to sell unprofitable business segments.Furthermore, the auditor would be challenged by the fact that the global pandemic has caused the financial potion of many companies to deteriorate and the ability of the entity to continue.

In addition to this, the company has become insolvent and the increased travel restrictions caused placed the company under the threat of not being sustainable because of the continuous loss incurrences, declined adjusted current ratio and increased overall trade creditors, inability to access the funding, insufficient receivables, cash and loan facilities(Deloitte, 2020).Moreover, the auditors need to put major emphasis on material misstatement through understanding the firm and its environment, including internal control of the company. A number of risk assessment procedures would provide relevant information in assessing and identifying the material misstatement risk, which includes evaluating the public information related to the effect of economic environment on the firm that is expected to offer the valuable insights of the risk realated to the global pandemic’s circumstances. Furthermore, the auditor would critically need to obtain an understanding of the perspective and current financing and liquidity requirements as well as performance measures of the company. By doing so, the auditor would find it easier to assess the risk of the company’s material misstatement…………..

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