https://www.frc.org.hk/zh-hk/enews/202002/enewsletter_202002_en_Final_website.pdf

 

香港財務彙報局發表最新電子通訊，就2020年2月4日香港交易所與香港證監會聯合發佈的新指引，上市公司管理層、審計委員會、審計師，應合作一起評估疫情對上市公司業績審計的影響。

特別是疫情對上市公司有否重大影響而需要調整、以及在財務報表中披露；審計師是否有足夠的時間和資源在今年3月底前完成對上市公司截至去年12月底止的審計；以及如果預期審計可能延遲，有否無法解決的具體及實際障礙等。

審計師應特別注意上市公司無形資產的減值評估，包括商譽、收入確認、關聯交易和異常交易等，有可能會增加不當會計或披露的風險。

通訊又提到，在現時充滿挑戰的金融和社會經濟形勢下，審計質量和審計獨立性更為重要。

鑒於目前的疫情，我們謹提請各方，應注意一些關鍵問題和建議：

For auditors

Management may be under pressure to meet financialand operational goals such as earnings or revenue targets, financial ratio,loan covenants and others. Audit firms may be subject to the same pressure too.This may give rise to adopting practices which may be too aggressive or may notbe in compliance with relevant laws or regulations and professional standards.

 

Under such circumstances, audit firms andaudit engagement partners should recognise the importance of compliance withethical requirements and remind the audit engagement teams of the same. Theyshould ensure that their audit engagement teams are independent and exhibitobjectivity and integrity at any time.

 

An audit engagement partner should beactively involved in risk assessment, planning, and in supervising andreviewing the work performed and should ensure that the engagement team hassucient time to undertake the audit in an e­ective and robust manner inaccordance with HKSA 220 「Quality Control for Audit of financial Statements」.It is even more important at the current situation that audit engagement teamand the engagement quality control reviewer remain sceptical and objective andare prepared to challenge the management』s estimation and judgements,particularly those relating to impairment assessment of intangible assets includinggoodwill, revenue recognition, appropriateness of the going concern assumptionand compliance with debt covenants. Other areas of focus include related partytransactions and unusual transactions that may heighten the risk of improperaccounting or disclosure. Hence, audit firms and audit engagement partnersshould arrange sucient and appropriate resources and competent professionals toundertake necessary additional procedures to address the above risks.

 

Audit firms and the quality control systemresponsible persons should ensure their quality control systems provide an e­ectivecheck and balance for compliance with professional standards and other relevantrules and regulations, and that audit quality is closely monitored andappropriate consequential action is taken where appropriate.

 

Other note-worthy issues are also includedin the section 『Reminder of key audit and accounting issues』.

 

For preparers of financialstatements

The board of directors, being the preparersof financial statements, have ultimate responsibility for the integrity andaccuracy of financial statements. They have the primary responsibility toensure that the finance function is appropriately resourced and has suitablyqualified sta­ to prepare financial statements that give a true and fair viewin accordance with the applicable financial reporting framework. They must alsoput in place necessary internal control to enable the preparation of financialstatements that are free from material misstatement, whether due to fraud orerror. The delegation to the audit committee of the oversight of financialreporting and the fact that there is an external audit do not absolve the boardof its obligations.

 

The current downward business environmentmay lead to rapidly deteriorating operating results and liquidity challengesfor some companies, particularly those in the catering, retail, tourism andconsumer-based industries. Directors, having a key responsibility to approvethe assumptions adopted by the entity and the key areas of judgement andestimation applied in preparing the financial statements, need to exerciseextra due care in these respects. In particular, when assessing the entity』sability to continue as a going concern, they should take into account all availableinformation (e.g. the global and local economic slowdown, the novelcoronavirus, operating losses, suspension of operations, working capitaldeficiencies, loan defaults or denial of credit from suppliers) about thefuture which is at least, twelve months from the end of the reporting period.This assessment should be based on realistic but not overly optimisticassumptions.

 

 

For audit committees

To discharge its responsibility ofoverseeing financial reporting processes e­ectively, the audit committee shouldfocus its e­orts on emerging risks and challenge management』s judgements andassumptions which may have significant impact on financial reporting, such aschanges in internal control; challenges, risks and opportunities facing theentity; key judgements and estimates made in preparing the financial statements(e.g. forecasts and underlying assumptions used in impairment and going concernassessments); and significant subsequent events.

 

There is a clear relationship between auditfees and audit quality. In light of the recent economic environment, we expecta downward pressure on audit fees. An audit committee should be mindful of theappropriateness of the audit fees after considering the size, complexity, andrisk profile of the entity. It is important to strike the right balance betweenon the one hand the level of audit fees, and on the other eciency and e­ectivenessof the audit process and audit quality. In particular, the audit fees should bea realistic amount such that the auditor is able to undertake a proper andthorough audit in accordance with auditing standards. Given the currentsituation and in light of the Joint Statement, the audit committee shouldinitiate discussion with management and the auditor to assess the implicationof the novel coronavirus on the year-end audit. In particular, professionalissues may include whether the incident has any significant impact on theentity that requires adjustments and disclosure in the financial statements;whether the auditor has sucient time and resources to complete the audit by 31March 2020 where the company has a December year-end; and what are the specificand practical impediments that would lead to an expected delay in thecompletion of the audit that are not capable of resolution. If thelast-mentioned situation occurs, we urge the audit committee to have anindependent discussion with its auditor in the absence of the management toensure that the auditor is not under undue pressure from management to completethe audit. This should help ensure audit that quality would not be compromised.

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