The global accounting community is being cautioned that some of the circumstances arising out of the current COVID-19 pandemic has given rise to a higher likelihood of accounting-related fraud, the United States-based International Federation of Accountants (IFAC) has warned.
“Economic crises have historically served as a powerful catalyst for financial malfeasance, and this risk is no different in the current environment,” the IFAC said in a statement circulated worldwide earlier this month. And the accounting body is cautioning all professional accountants to be attuned to this heightened risk and continue to exercise “high levels of diligence, integrity, and professional judgment,” at this time.
Pointing to the International Code of Ethics for Professional Accountants, including International Independence Standards, which it says “establishes the standard of behavior expected of a professional Accountant,” IFAC says that professional accountants, “whether serving as members of a Board or audit committee, organizational leaders, preparers or auditors, are critical to the financial reporting system.” And while the body asserts that it is not possible for the profession to prevent corporate failures, it reminds: “It is our responsibility to continue to provide fair and reliable financial reporting and disclosures that appropriately incorporate our best judgments, estimates, and assessments as well as being alert to the increased risk of fraud and financial representation.”
“Because of the unprecedented nature of COVID-19, greater transparency and disclosure of forward-looking information on an organization’s operating performance, financial position, liquidity and future prospects are more critical than ever, notwithstanding the fact that current circumstances render the realization of these objectives ‘more challenging’,” the IFAC says.
And IFAC is calling on management and board members of institutions “with their ultimate responsibility for preparing and overseeing financial reporting and communication to work towards maintaining “an effective control environment” which it says is likely to change or has already changed “as a result of adapting operating environments to remote working and other COVID-19 demands.”
The Federation meanwhile, urges auditors to focus on the implications of any such changes for the control environment and “any new or changed risks” and move to adapt their audit approaches in order to obtain sufficient audit evidence on which to base their opinions.
According to IFAC, the current environment requires professional accountants “to make reasonable, good-faith judgments… on the basis of information currently available… transparency on known and material uncertainties, as well as robust processes and documentation supporting such disclosures will help promote sound decisions and auditors’ assessments thereon will stand the test of time.” This, it adds, “will also enable investors and creditors to make informed decisions possible.”
The IFAC exhorts professional accountants to play “a pivotal role in ensuring the continued ability of organizations to be resilient to the significant challenges they face in these difficult times.” This applies, it says, “to all organizations – big and small – across all sectors of the economy, and involves helping organizations focus on good governance, sound strategy and strengthening their business models.”
“Our actions today will have a significant impact on our reputation and standing tomorrow. By upholding the highest standards of our professional and ethical conduct during COVID-19, and by challenging ourselves to exercise heightened diligence and being open and alert to further action needed, we will live up to our public interest responsibilities and continue to positively shape how our profession is viewed,” the IFAC statement adds.
