What to Expect from Your 2021 Audits and Reviews

Business practices continue to evolve, and the accounting world is no different. For organizations that receive audits — including those that receive financial statement reviews — there are developments affecting accounting department and changes in the way audits and attest services are being conducted that may affect your experience with your auditor. Some updates stem from COVID-19 disruption, others are unique to the 2021 environment and then there are updates tied to efforts by standard-setting bodies to improve the overall quality of audits and financial statement review services. Taken together, the changes could have a significant impact on the 2021 audit and review cycle.

Let’s look at how COVID-19 has re-shaped the accounting, auditing, and review process and take a peek at other developments that might affect your year end reporting.

COVID-19’s Impact on Accounting

In 2020, shuttered businesses, an abrupt switch to remote work, and a halt in deal activity brought forth an unexpected wave of unprecedented accounting and reporting challenges, which are still lingering in 2021. Organizations that experienced a decline in demand for their services or had revenue streams affected by the ongoing global supply chain challenges will continue to grapple with going concern and impairment implications in their 2021 financial reporting. Additionally, some will continue to deal with all forms of government assistance received as a result of the pandemic.

On top of the specific accounting for business disruption, 2021 presented additional challenges and considerations.

Staff Shortage

With a wave of professionals resigning from their job in the past year, many companies face exposure to accounting and financial risks due to the lack of financial reporting expertise. Turnover in key positions runs a risk of knowledge loss on control activities. Internal finance departments may be short staffed as well. To mitigate those potential issues, companies should cross-train employees on vital tasks or utilize technology to alleviate workloads so employees can focus on other responsibilities.

Accounting providers are also dealing with the fallout from the so-called “Great Resignation.” With employees juggling increased workloads, flexibility during the audit process may be limited. As the new year approaches, companies should consider shifting the audit timeline earlier and involving more employees in the process.

New Standards & Laws

Significant accounting and tax changes are looming on the horizon as well. Private companies may not want to wait until the January 2022 deadline to adopt the new lease accounting standard under ASC 842, as the implementation process will be complex and time-consuming.

In addition, proposed federal tax provisions may significantly impact many organizations this year at the last minute, making it essential to coordinate with a tax professional on an assessment beforehand. Accounting for the changes to income tax may be an issue, as witnessed during the 2017 tax reform law commonly known as the Tax Cuts and Jobs Act.

It’s essential to keep up-to-date with the latest accounting standards as well. Changes that affected 2021 reporting include everything from accounting for income taxes to accounting for cloud-based software.

Growth Strategies

The merger and acquisition (M&A) market is on a record pace in 2021. Similarly, the market has also been strong for companies considering the public option. During these significant business changes, routine financial procedures and tasks require an increased  workload because of the increased scrutiny brought by due diligence activities. Organizations grappling with staff shortages and other reporting obligations may need to bring in additional support to address M&A related requests and activities. Those considering a public offering are likely to require strengthening their internal control processes to meet the more stringent requirements of the SEC.

Audit & Attest Standard Changes

New auditing standards will also affect audits performed on 2021 financial statements. These standards will impact the performance of the audit and therefore, being aware of the standards can help companies prepare for changes in the audit process that may result from the new standards.

For instance, the new auditing standard, Omnibus Statement on Auditing Standards — 2019, aims to improve auditor communications, related parties, and consideration of fraud for auditors who perform under the AICPA’s Accounting Standards Board (ASB) and Public Company Accounting Oversight Board (PCAOB) standards. Companies can expect more emphasis on previously unidentified or significant transactions involving related parties as well as more focus on unusual transactions during their 2021 audits.

And it’s not just audit standards being updated. The AICPA’s new agreed-upon procedures Statement on Standards for Attestation Engagements (SSAE No. 19) changes some of the requirements for providers by stipulating:

  • The practitioner no longer needs to request an assertion from the responsible party
  • The practitioner is permitted to issue general-use reports 
  • Intended users are no longer required to take responsibility for the sufficiency of the procedures
  • The practitioner is allowed to develop or assist in developing procedures throughout the agreed-upon engagement

These changes to  agreed-upon procedure services will inevitably impact  companies as well, so it’s worth noting.

Companies that receive financial statement reviews may also want to be aware of a new AICPA attestation standard—SSAE No. 22, Review Engagements, which aims to tackle transparency and consistency in review reports and engagements.

The new standard notes that in conducting a review engagement, the practitioner strives to:

  • Obtain limited assurance about whether any material modifications should be made to the subject matter for it to be in accordance with (or based on) the criteria
  • Disclose in the review report whether the practitioner is aware of any modifications that need to be made
  • Issue a report containing an adverse review conclusion when the subject matter is materially and pervasively misstated

For more detailed information on each standard, check out the AICPA website.

Next Steps

With the current business environment, complicated accounting standard implementation, and updates affecting audit and attest services, the 2021 audit cycle will be another interesting one to navigate. For more information about the impact of these auditing and accounting changes, please contact a member of our team.

Published on November 09, 2021