COVID-19 & Ethics | Staff Publication

ETHICAL AND AUDITING IMPLICATIONS ARISING FROM

GOVERNMENT-BACKED COVID-19 BUSINESS SUPPORT SCHEMES

January 2021
 Ethical and Auditing Implications Arising from Government-
backed COVID-19 Business Support Schemes

This staff publication highlights ethical and auditing implications arising from government-backed
COVID-19 business support schemes and provides related guidance to professional accountants in
public practice and in business.

Professional accountants need to be mindful and take

into consideration that some jurisdictions might have
provisions that differ from or go beyond those set out
in the International Code of Ethics for Professional
Accountants (including International Independence
Standards) (the Code). In these jurisdictions, accountants
need to be aware of those differences and comply with
Click on images to access the Code
the more stringent provisions unless prohibited by law
or regulation.

This publication was developed by the Staff of the UK Financial TA B L E O F CO N T E N T S

Reporting Council (FRC) under the auspices of a Working Group
formed by the International Ethics Standards Board for Accountants
(IESBA) and national ethics standard setters (NSS) from Australia, Page 3
Canada, China, South Africa, the UK and the US.1 The publication has Introduction
also benefited from the input of the Staff of the IESBA.
Page 3
Ethical Considerations Relating to Entities’
The Working Group’s charge is to develop implementation support
Applications for Support
resources to assist professional accountants in effectively applying the
Code when facing circumstances created by the COVID-19 pandemic. Page 5
Ethical Considerations Relating to Entities’
This publication does not amend or override the Code or applicable Use of Support Funding
auditing standards, the texts of which alone are authoritative. Reading
Page 6
this publication is not a substitute for reading the Code or the auditing
Considerations Relating to Financial
standards. The implementation guidance is not meant to be exhaustive
Reporting and Auditing
and reference to the Code or the auditing standards, as appropriate,
should always be made. This publication does not constitute an Page 7
authoritative or official pronouncement of the UK FRC, the IESBA, or Appendix
the other NSS organizations that form part of the Working Group.

1. The NSS are the Australian Accounting Professional & Ethical Standards Board, Chartered Professional Accountants of Canada, the Chinese Institute of
Certified Public Accountants, the South African Independent Regulatory Board for Auditors, the UK Financial Reporting Council, and the American Institute
of Certified Public Accountants.
 3

Introduction

1. In many jurisdictions, governments have responded to the 2. The existence of such schemes may pose additional or
COVID-19 pandemic with an unprecedented range of business heightened risks that professional accountants3 and auditors
support schemes. These have provided funding to furlough need to consider carefully. This paper sets out some of those
staff,2 as well as additional liquidity and loan funding, to issues, which may have ethical implications, implications for
support businesses through a period of business closure, and those who prepare financial information, and implications for
circumstances where they may not be able to deliver on all those who independently audit or assure such information.
their product or service offerings.

Ethical Considerations Relating to Entities’ Applications for Support

3. Professional accountants and auditors may have an important additional financing facilities or the disposal of parts of their
role to play in supporting entities that apply to a government operations. Where the professional accountant in public
support scheme, or to a financial institution for additional practice or auditor agrees to provide assurance services in
support. Supporting such an application may pose a threat 4
support of such applications, they need to carefully consider
to independence where the professional accountant in public the impact that this may have on their independence, which
practice or auditor assumes management responsibility when may be subject to a range of threats as set out in more detail
undertaking such an engagement. This is prohibited by the in the rest of this paper.
Code, and practitioners requested to provide such support will
need to ensure that the engagement does not result in them 5. The provision of information in support of applications for
assuming a management responsibility when performing the financial support may be time critical. Government may
service, thereby compromising their independence. require audited financial statements to support applications.
Government may also, or alternatively, require assurance
to support the veracity of reported business turnover or
The IESBA May 2020 Staff Q&As management’s assertions about the impact of the pandemic
publication includes important on the business, or to attest to other specified preconditions
considerations for firms that are for the financial support. Accessing that support is critical to
called upon to assist audit clients ensuring that an entity does not trade while insolvent. This
in securing COVID-19 related may in turn limit the time that the professional accountant in
funding or financial support. public practice or auditor has to carry out the necessary work
(See Non-Assurance Services, required to an appropriate standard, and with due skill and
section at page 7) care. A self-interest threat may be created if the professional
accountant in public practice or auditor has insufficient time
Click image to read more
to perform or complete the relevant work. Accordingly, it
is important that the professional accountant in practice or
auditor put in place appropriate steps to ensure that there is
4. Many large companies have also sought to strengthen their sufficient time to carry out the engagement in accordance
financial position by taking a range of actions, including with the fundamental principles and other requirements of
raising equity or placing debt through financial markets. Mid- the Code.
sized and smaller companies may have sought to strengthen
their liquidity or financial position through the agreement of

2. Furloughed staff are given a temporary leave of absence by their employing organizations whilst still being paid.
3. For ease of reference, in this publication hereafter, the terms “professional accountant” and “professional accountant in public practice” refer to a profes-
sional accountant or a professional accountant in public practice other than an auditor.
4. Paragraph 120.6.A3 of the Code describes the categories of threats to compliance with the fundamental principles and to independence.
 4

6. Providing the necessary assurance as part of the application 8. These assessments will depend on the application of
for the financial support may result in the professional professional judgment. On one hand, public authorities may
accountant in public practice or auditor having to evaluate have encouraged affected businesses to apply for support
assumptions or judgments made by management. This work and for professional advisors to support them through that
might create an intimidation threat to compliance with the process. However, practitioners must ensure that they consider
fundamental principles if management puts pressure on the the ethical obligations arising from any services provided.
practitioner to accept those judgments. This may be the case To help their consideration of threats to independence,
if funding decisions are critical to the entity’s survival. Such application of the Code’s conceptual framework requires
engagements, and providing wider support to management, consideration of how the services would be viewed from
might also create an advocacy threat if the professional the perspective of an objective, reasonable and informed
accountant in public practice or auditor is asked to provide third party, particularly where the assessment criteria for a
assistance in making a case for financial support. support scheme could be open to interpretation. They could
also engage with stakeholders of the company to better
understand their expectations.

9. Where such threats are identified and they are not at an

acceptable level, paragraph R120.10 of the Code requires the
professional accountant in practice or auditor to take steps to
eliminate the threats or reduce them to an acceptable level.
Where they are unable to do so, the professional accountant
in public practice or auditor would need to decline the
professional service.

7. Where the professional accountant in public practice or

auditor provides a professional service to the entity that
involves preparation of financial information as part of the
application for the financial support, a self-review threat to
independence might also be created. Further, if the provider
of assistance charges any sort of fee contingent on the
success of the application, there is likely to be a self-interest
threat. Section 410 of the Code sets out specific requirements
and application material addressing circumstances involving
contingent fees.
10. For a professional accountant in business, they may be asked
to generate information which might be used in support of
an application. They will also need to consider how to address
any threats they face, particularly where they are asked to
adopt an aggressive treatment of financial information to
meet the criteria for support from a scheme. The guidance in
paragraph 8 may be helpful in dealing with this situation.
 5

Ethical Considerations Relating to Entities’ Use of Support Funding

11. Where a business receives financial support, this may result in the Code guide professional accountants in business and in
the identification of further risks that need to be addressed, public practice in responding to non-compliance with laws
or it may exacerbate existing risks that an entity faces. For and regulations (NOCLAR).
instance, in the UK, the government provided financial
support to allow workers in affected sectors to be furloughed
on a set percentage of their salary subject to a cap. One Learn more about NOCLAR
of the conditions to the furlough scheme was that those by visiting the IESBA

workers should not be used by the business while under NOCLAR Web Page.

furlough. The UK press has reported examples of misuse

Click image to read more
of this funding, which may be an attempt on the part of
a dishonest business to defraud the taxpayer by reducing
the cost of doing business.5 In other jurisdictions, different
requirements will apply. For example, in Australia, the
government introduced a ‘JobKeeper wage subsidy scheme’ 14. The provision of business support funding has been effective
to encourage employers to retain employees by contributing in providing businesses with additional liquidity to see them
to the costs of the employee, and in some cases such through operational restrictions caused by ‘lockdowns’.
employees can continue to work (e.g. at reduced hours). However, increased liquidity may bring with it implications for
the solvency of a business. An example of such a situation is
12. Some jurisdictions include requirements for independent if the funding provided has to be repaid if there are additional
assurance over the use of business support funding. If a profits earned as a result of the financial support, but the
professional accountant in public practice or auditor is entity is unable to repay the funding. This assessment will
asked to provide such assurance, this needs to be carefully require the exercise of appropriate professional judgment and
considered to determine if it will expose the auditor to professional scepticism, which will need to take account of
threats to independence or objectivity that cannot be the greater uncertainty businesses may face as a result of the
effectively addressed. This risk may be greatest where the pandemic.
level of support provided to a business is material to that
entity in either quantitative or qualitative terms or both. In 15. As in situations involving applications for support,
such circumstances, management may be under greater professional accountants in public practice and auditors
pressure to report that they have complied with the rules of might face threats to compliance with the fundamental
the support scheme. principles or to independence as a result of intimidation,
finding themselves in a situation where they may be
13. Even where a support scheme does not require the provision undertaking an advocacy role, or where they may be required
of independent assurance, local reporting obligations or to make judgments that expose them to a self-review
requests for such reporting may mean that the professional threat. Where such threats are identified, the professional
accountant in practice or auditor becomes aware of accountant in public practice or auditor undertakes the steps
companies reporting a position which is misleading or set out in paragraph 9 of this paper.
fraudulent. Where this is the case, local regulatory
requirements addressing the reporting of fraud, money
laundering or use of criminal proceeds will need to be
complied with, and the professional accountant or auditor
may need to take appropriate advice so that they understand
their obligations in that respect. Sections 260 and 360 of

5. See the Appendix for illustrative examples of fraud, money laundering and other related issues arising from government support schemes around the world.
 6

Considerations Relating to Financial Reporting and Auditing

16. Whether or not a business has accessed a support scheme 19. Operational pressures on a business may also create incentives
or schemes, a company will still need to prepare financial or pressure on management to commit fraudulent financial
statements to meet local tax, filing or auditing requirements. reporting, or failure to comply with the applicable legal and
In many jurisdictions, governments or local securities regulatory framework to which the entity is subject. Such
regulators have recognised that heightened uncertainty matters would need to be considered by the auditor in
and operational restrictions may delay the preparation and planning and performing their work.
audit of financial information, and they have responded by
offering extended filing deadlines. In a complex international
group, the group auditor may need to consider not only the Click on image to access COVID-19
requirements applicable to the parent company, but also those guidance issued by the International
applicable to components operating in other jurisdictions. Auditing and Assurance Standards
Board (IAASB).
17. Many regulatory authorities have issued guidance on the
implications of the pandemic for preparers and auditors. Click image to read more
This paper considers some of the factors that apply where
entities have received support from government schemes,
and how that support may impact on judgments taken by
management, and assessments that subsequently need to be
made by an independent auditor to support their conclusions. 20. Operational restrictions on an auditor, for instance, an
inability to enter an entity’s premises to undertake necessary
18. The importance of the support received will depend on the procedures, may impact the auditor’s ability to obtain
nature of a company’s operations and the degree to which sufficient, appropriate audit evidence. For example, auditors
they were affected by the pandemic. Where the level of will need to consider applying non-standard techniques in
support is material (in either quantitative or qualitative terms order to obtain the necessary evidence.
or both), then the auditor considers whether this poses a
higher level of risk to the engagement, and factors this into 21. The auditor can assist users of the financial statements by
the way in which they plan and perform their audit. Where reporting in a clear, unambiguous and transparent way,
financial performance is relevant to determining whether an considering whether the impact of the pandemic, and support
entity has met key targets – for instance, meeting banking the entity has received to continue to trade viably, should be
covenants, public performance targets or confirming the reported as a key audit matter. Where the auditor includes
entity’s going concern status – the auditor will need to additional disclosure in their report or modifies their opinion
ensure that they apply appropriate professional scepticism because of the impact of the pandemic, they should not
when assessing management’s judgments, which is likely employ boilerplate language, and should accurately and
to be heightened given the nature of the assessments clearly report the situation.
they are required to undertake. Professional scepticism is
heightened further where estimates are subject to high levels 22. Guidance developed by the UK Financial Reporting Council for
of estimation uncertainty or may be more challenging to audit preparers, auditors, directors and users of financial statements
because of heightened uncertainty in the marketplace. Early can be found at: www.frc.org.uk/covid-19-guidance-and-
on in the pandemic, the lack of an economic anchor scenario advice. This includes more detailed advice on the issues that
to use to make a severe but plausible downside assessment preparers of financial statements, directors and auditors
also exacerbated the challenge faced. should be considering as a result of the pandemic, and how
they might address those in a way that is responsive to the
public interest. It also includes guidance on dealing with group
audits where the auditor might face operational restrictions in
visiting components or component auditors.
 7

This paper should be read in conjunction with other non-authoritative guidance issued by IESBA, as the risks
posed by the COVID-19 pandemic may cover a broad range of issues, including increased risk of fraud or money
laundering, and the use of specialists. These resources are available at the IESBA COVID-19 Resource Web Page.

2020
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Appendix
Illustrative Examples of Reported Fraud, Money Laundering and Other Related Issues Arising from Government Support Schemes

CNBC National Post

Criminals launder coronavirus relief money, exploit victims CRA to launch audit pilot project to see if fraud is prevalent
through popular apps in federal wage subsidy program

Wall Street Journal Austrialian Goverment

Evidence of PPP Fraud Mounts, Officials Say ATO zeroes in on COVID-19 fraud

Accounting Today Scam alerts

Will PPP fraud turn into the next wave of ‘liar’s loans’?s
Australian Broadcasting Corp.

Government of Canada More than 6,500 applications for JobKeeper rejected due

COVID-19: Frauds and scams to ineligibility or fraud, ATO says

The New Daily

CTV News
CRA snitch line now open to report fraudulent CERB claims JobKeeper: Accountants warn of ‘pop-up’ fraud linked to
wage subsidy
Numerous reports of fraud cases involving Canada
Emergency Response Benefit
About the UK FRC
The UK Financial Reporting Council (FRC) regulates auditors, accountants and actuaries, and it sets the UK’s Corporate Governance and
Stewardship Codes. The FRC promotes transparency and integrity in business. Its work is aimed at investors and others who rely on
company reports, audit and high-quality risk management.

About the IESBA

The International Ethics Standards Board for Accountants (IESBA) is an independent global standard-setting board. The IESBA’s
mission is to serve the public interest by setting ethics standards, including auditor independence requirements, which
seek to raise the bar for ethical conduct and practice for all professional accountants through a robust, globally operable
International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code).

Key Contacts The UK Financial Reporting Council, IESBA, and IFAC do not accept responsibility for loss
caused to any person who acts or refrains from acting in reliance on the material in this
Mark Babington, Executive Director,
publication, whether such loss is caused by negligence or otherwise.
Regulatory Standards, UK FRC
[email protected] The International Code of Ethics for Professional Accountants™ (including International
Independence Standards™) is published by, and copyright of, IFAC.
Ken Siong, Senior Technical Director, IESBA The ‘UK Financial Reporting Council’, ‘FRC’ logo is a registered trademark of the FRC
[email protected] United Kingdom.

The ‘International Ethics Standards Board for Accountants’, ‘International Code of Ethics for
Diane Jules, Deputy Director, IESBA
Professional Accountants (including International Independence Standards)’, ‘International
[email protected]
Federation of Accountants’, ‘IESBA’, ‘IFAC’, the IESBA logo, and IFAC logo are trademarks of
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Auditing’, ‘International Standards on Review Engagements’, ‘International Standards on
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