May 2020

We’re all navigating new territory during the COVID-19 pandemic, and that includes your auditors. Few anticipated that their nonprofit’s auditors would need to work remotely to review the 2019 accounts. Some auditors may even be reluctant to conduct audits from their home offices, citing misgivings about whether professional standards permit fieldwork performed remotely.

With no choice, most auditors will begin to perform their duties. As a leader of a nonprofit organization, what do you need to know about digital audits? Do they differ from an audit conducted at your office? And how will the pandemic affect the financial statements and disclosures?

Digital Audits: 6 Areas Your Auditor Will Examine

There are six areas that auditors are likely to focus on during a digital audit.

1. Verifying hard copies: Auditors are used to fieldwork, that is, going to a client’s offices and looking at documents and other resources on site. They can easily ask employees questions about the materials under scrutiny. With the COVID-19 pandemic, that’s out of the question in many parts of the country where the outbreak continues to limit interactions with others. Instead, auditors may request that documents be sent to them. If they do need access to papers or hard-copy records, they may ask that a third party verifies the accuracy of them. This isn’t a slight aimed at your organization or an individual. It’s simple due diligence if they are forced to work from scans, photocopies, or materials delivered by a trackable, traceable courier or delivery service.
2. Going concern: The financial strain from the pandemic may call into question whether or not a nonprofit will continue operations as a ‘going concern.’ The auditors will look at whether or not there are considerations that will impact if the nonprofit can continue as a going concern. In some hard-hit areas and industries, there may be substantial doubt that the organization can continue operating. “Substantial doubt” means that, in management’s opinion, the organization may not be able to remain open. Such doubts must be disclosed in the notes to the financial statement. Including such notes is required, even if management has a plan to rectify the situation.
3. Emphasis of matter: Even if there isn’t substantial doubt, auditors may still request that a nonprofit adds an emphasis of matter paragraph to the financial statement. At a time when the future is uncertain and information changes rapidly, auditors may feel it is in the organization’s best interest to do so.
4. Scope limitations: Remote audits may impose scope limitations on the audit. Key evidence and confirmations may not be returned. Auditors may be unable to evaluate the design and implementation of controls at the client’s location. These and other factors that are dependent upon being physically present at the client’s location may limit the audit scope.
5. Subsequent events: Audits based on a calendar year-end of December 2019 may find that COVID-19 events are Type II events. Disclosure may be required even if the events do not have to be recognized in the financial statement. For 2020 events, COVID-19 related events may require adjustment to the financial statement. For example, investment income may fall as a consequence of the pandemic. These may fall into the Type I event category or events that provide evidence of conditions that existed at the financial statement’s date.
6. Risks and uncertainties: Management must disclose risks and uncertainties. Right now, everything and anything might feel risky and uncertain. Auditors will focus on risks and uncertainties that arise from the nature of the entity’s operations, significant estimates, or current vulnerabilities due to certain concentrations. Your organization’s auditors will advise you if you need to disclose such risks and uncertainties. Things such as geographic areas in which you operate, travel restrictions, and the like will be considered as part of this evaluation.

Remote Audits the New Norm?

As the world hopes for a vaccine or an effective treatment against COVID-19, nonprofits should plan for a future where remote work continues to be the norm. The COVID-19 pandemic has exposed the need for many companies and organizations to invest in cloud software and remote-working technology that enables them to continue operations seamlessly, whether working from home or office. To that end, nonprofits should plan for a future in which auditors require access codes rather than physical hand-off of documents as part of their auditing duties. Remote audits are likely to become part of the “new normal” post-pandemic world.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

As the world settles into the “new normal” of life with COVID-19, new patterns emerge in people’s business and personal lives. What was important in 2019 now seems unimportant. The COVID-19 pandemic has forced everyone to rethink and reprioritize what gives their lives meaning and purpose.

We also see significant effects ripple throughout the business community. These effects are likely to impact the nonprofit business community just as much, if not more, than the for-profit world. The following three are the most likely COVID-19 changes that will continue well beyond the current crisis.

Celebrating the Average Citizen

People still enjoy sports and mourn the loss of baseball, football, and other national sporting events. Glamorous Hollywood stars still vie for Instagram attention. Celebrities remain in the news.

Yet fewer people look to them as role models. Instead, many recognize that the true heroes in our midst aren’t the athletes, the movie and television stars, or the musicians. The true heroes are the doctors, nurses, and other healthcare workers clocking in for their shifts on the front line during the pandemic…the first responders, like our police and fire departments, who are essential workers and must respond no matter what the danger to themselves.

It’s the return of the ordinary citizen as a hero, and we couldn’t be more delighted with this change.

Expected impact: Nonprofits who work with celebrities for endorsements may find that choosing a local hero for a spokesperson resonates better with their constituents. Celebrating the heroes at your nonprofit and the role they played in the COVID-19 outbreak (if any) may also be a story worth telling.

Telecommuting Gains Wider Acceptance

Remote work was supposed to be the way of the future. Many nonprofits resisted the concept, however, insisting that employees needed to be in-person to collaborate.

COVID-19 forced everyone to work from home. Some transitioned smoothly, especially those using cloud-based systems. Other struggled. But most are finding that there’s little if any, loss of productivity once their employees get used to working from home.

Businesses everywhere are now part of the most massive telecommuting experiment in history. And it’s working to everyone’s benefit. Pollution is down, thanks to fewer cars on the road. Even insurance companies are giving rebates to drivers for a portion of their insurance premiums because there are fewer accidents.

Expected impact: Workers will continue to request remote work options. Technology will respond by providing better equipment to stay in touch and collaborate over distances. The days of large office spaces may be over. Instead, only core workers will gather in an office, or workers will spend part of the week in the office and part working remotely. Remote work is here to stay.

Move Over, MacGyver

In the 1980s, a television hero name MacGyver used everyday items – duct tape, a Swiss army knife – to get out of trouble rapidly. To “MacGyver” something became code for figuring out an ingenious solution to an emergency.

Today, we see “MacGyver” solutions to many COVID-19 problems. Citizens and students designed masks for healthcare workers and began printing them on 3D printers. Town Councils began live-streaming meetings they never imagined could be live-streamed before. Churches discovered Facebook live for worship services.

There’s an upsurge in resources for nonprofits among accountants and other consulting professionals to help them understand the ramifications of the changing business world and how it may impact them financially. Relief and financial survival tactics are being shared with clients, and accountants are finding new ways to work with clients via telecommuting methods. It’s all part of the creative, MacGyver-like response to the emergency.

Expected impact: Nonprofits must continue to respond creatively to the challenges at hand. Some solutions thought of as temporary may become permanent, such as changing costly in-person meetings to videoconferencing.

Consultants Rise to the Occasion

Lastly, we’re seeing the demand for consultants to rise to the occasion and develop innovative suggestions for their clients to continue working. Figuring out a solution to the problem of stay-at-home and social distancing for restaurants, retail stores, and other nonessential businesses forced to shut down has been challenging, but they’re doing it.

So too, in the nonprofit world, many consultants are finding creative ways to help their clients keep the doors open and meet their mission objectives. It’s not easy, but in this pandemic-driven world, nothing is easy.

Expected impact: Like many consulting firms, our team is doing its best to provide information, resources, and support to our clients. Look at our website and articles such as this one for the latest resources to help your organization during the COVID-19 pandemic.

Welter Consulting

We hope that this message gives you some hope and inspiration. The world is changing, and nonprofits must change alongside it. Change, difficult as it can sometimes be, is inevitable. And it can be for the best.

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.