Auditing government assistance: Are you prepared?
The Canadian federal and provincial governments have provided various forms of assistance to help businesses and individuals through the pandemic. These programs affect practitioners, especially those who provide assurance services, with clients who have applied for and/or received funds from these programs, as these potentially introduce new areas of material misstatement.
The receipt of government assistance, such as subsidies, grants, and loans may result in a new class of transactions and possibly lead to new risks of material misstatement in the financial statements, either due to fraud or error. In many cases, the verification process by the government prior to granting funds may have been fast-tracked to speed up accessibility of funds for businesses impacted by the COVID-19 pandemic. While this rapid response has helped businesses from a cash flow perspective, it may also increase the risk of fraud or error in the financial statements.
It is important to remember that even if your client has received funds, it does not automatically mean they were eligible to receive them, or that they met the criteria. Financial reporting frameworks generally require that a liability to repay government assistance be accounted for when conditions exist that will cause government assistance to be repayable. Simply reviewing a confirmation of payment receipt, for instance is not generally sufficient evidence to support that the conditions have been met by the entity.
CPA Canada has produced an article with an overview of the audit considerations including risk assessment, audit planning, engagement execution and evidence collection. Read the article to learn how the receipt of government assistance by your clients may impact your engagements.