A first year audit during COVID-19

This blog is one in a series provided by board members of the Tech Faculty offering their insights and lessons learned during the COVID-19 pandemic. In this blog, board observer and Financial Controller at Herald Investment Management Limited, Ann Ng, describes her experiences of changing her auditor during COVID-19 and why, in similar circumstances, she would do it all again.

Changing auditors is not usually something one would choose to do frequently. The mandatory change of firm rules only apply to listed audit clients in the FTSE350 under both the Corporate Governance Code and the Competition and Markets Authority Order and furthermore, public interest entities must comply with EU audit legislation. Otherwise, for private limited companies, UK auditors can continue to serve whilst complying with the Auditing Practices Board’s Ethical Standard 3 by rotating the engagement partners and senior staff to satisfy independence concerns.

There is quite a bit of work involved in the audit tender process and all the palaver and complication about giving notice to ICAEW and Companies House can be other reasons to avoid this change. Then having decided to change, you have to start getting to know the new firm, new audit team and above all, going back to square one to assume your auditors know nothing about you, your business, your work processes, key controls, how much reliance they can put on you and vice versa of course. It is a colossal time and effort investment for all involved, where both parties might not see the gains until the following years.

However, feeling it was time to review our current auditors who had served us for the last 10 years with our private limited companies, we put our audits out to tender last autumn to get some fresh keen faces. After a lengthy tender process of presentations, report analysing and reference gathering the Herald board appointed BDO to undertake our audits for the year end 31st March 2020.

Fortunately, we had our preaudit planning meeting in our offices on 9th March and this proved to be invaluable. Even then, there were still many opposing opinions about how seriously the coronavirus pandemic would impact us. But the coronavirus seemed to spread easily and was stealthy in its attack. Our company was rightly sceptical and to date I have not been back to the office since that meeting on the 9th. The UK went into lockdown on 23rd March 2020 and we rightly feared a long and difficult road ahead in getting through this first year audit, eight days before our year end.

The usual signing date was pushed forward a couple of weeks to the first week of June and so onto the series of audit meetings over phone calls, Skype, Microsoft Teams all with varying success as the whole of the business community were finding their way through the plethora of voice and video apps that had hardly been worth a mention previously but were now being talked about daily.

Everyone was working from home with some now abroad. However, other than the time difference, it didn’t seem to matter where your remote working desk was located. We gave the auditors access to our accounts system and BDO had an information sharing portal which worked well to control the storage of documents and help with version control. But, it was hard work: explaining things remotely takes much more time than being able to explain being face to face; sharing evidence electronically rather than giving access to files that already existed in the office took more time and just having to arrange times to speak to people rather than approaching them as one would if in the office also made the process a lot longer. It also felt different trying to build relationships when working completely remotely.

Communication is key to a successful audit and whether it is conducted in the more customary way in the client’s offices or more remotely, there is still scope to get it wrong, and I believe it ultimately comes down to people. Given the clearly evident constraints we were all working under I felt it made us all the more determined to put in the effort to work through this together. I’m very glad to say that I very much felt that on the whole, BDO were on the same page with us in this respect. That’s not to say things we didn’t have any issues. In fact the final stumbling block to signing off the accounts was not having received bank confirmations back, which has always been a problem with a particular one of our banking institutions, but that it affected others was a side effect that fewer staff, presumably because some were furloughed or were on sick leave, were working behind the scenes in outsourced firms relied upon by our auditors.

The uncertainty that COVID-19 posed for everyone meant that there was more work done to ensure that BDO would be happy about signing us off as a going concern, and this looks to remain the same for some time ahead.

Having had our post audit debrief we both have our target areas of improvement for next year, but all agreed that given all the obstacles, it had been a successful audit. If you were to ask me whether with the benefit of hindsight, we would have put the audit out to tender last autumn, knowing it would all be conducted remotely, it is an unequivocal ‘yes’. However, it will be good to meet the audit team in person next year for a hopefully more typical audit.