ALERT - Implications of the Coronavirus (COVID-19) for pension scheme audits

  • Written By: Matthew Maneely
  • Published: Thu, 30 Apr 2020 15:40 GMT


On 31 December 2019 the World Health Organisation was notified of a new, then unknown, coronavirus. This was then isolated on 7 January 2020 and the resulting disease was named as COVID-19 on 11 February 2020 and declared as a pandemic by the World Health Organisation in March 2020. This virus and the resulting disease has since travelled around the world with many countries implementing unprecedented peacetime restrictions on citizens.

There are many implications for auditors and our clients and this alert provides some guidance on how your scheme audit may be affected in the following areas:

  1. Consideration of going concern
  2. Professional scepticism
  3. Auditor attendance at client or administrator sites
  4. Consideration of impairment
  5. Other implications for financial statements
  6. Auditor reporting
  7. Reporting dates


1. Consideration of going concern

When preparing financial statements, the assessment of going concern must use the latest available evidence and consider the foreseeable future which considers at least 12 months from the date the financial statements are approved.

“The going concern concept does not play the same fundamental role in the measurement and classification of assets and liabilities in pension scheme financial statements as it does in the financial statements of commercial entities.” (SORP 2018 para 3.29.5)

The SORP continues: “Accordingly, the basis of preparation of the financial statements does not need to refer to the going concern concept unless the trustees or employer have taken the formal decision to wind up the scheme or have no realistic alternative but to do so, for example, where there have been a cessation event (these are normally set out in the trust deed and rules).”

There is an increased likelihood that sponsoring employers will be experiencing financial difficulties which might trigger a cessation event or might result in a liquidation event of the employer.

The overriding decision trustees must make is: whether or not a cessation or liquidation event is likely to take place. As circumstances are rapidly changing, are trustees confident that they can make this assessment?

It is generally expected by the FRC that additional time will be required reviewing going concern for audits during the current circumstances, and professional scepticism must be applied where it is suggested there is not a material uncertainty relating to going concern.

2. Professional scepticism

The Financial Reporting Council (“FRC”) have reminded all audit firms that they need to exercise appropriate professional scepticism while performing audits and, in the current circumstances, must consider how to demonstrate and document an appropriate level of scepticism over management’s (trustees’) assertions and assumptions arising from the COVID-19 pandemic. Audit firms have also been reminded that, on its own, a written representation from management (trustees) is never sufficient, appropriate audit evidence.

3. Auditor attendance at client or administrator sites

Many organisations have closed sites or closed them to non-essential personnel. Typically, this will mean visitors including audit teams will not be permitted access. The UK has issued “stay at home” instructions.

Where possible, communication can be maintained electronically, for example using Skype, Webex, Teams or other similar technology. Possible alternatives to communicate with auditors include:

  • Emails may be needed as support but should not be the primary communication method
  • Cloud transfers of information do allow for documents to be transferred and can allow for instant message/chat communications. They often have more security built in so are preferable to emails
  • Voice communications allow for quicker responses and instant feedback to questions and can help all of us working from home deal with the isolation they may be experiencing
  • Screen sharing technology generally linked with voice communication will allow users to see what actions the client is taking when performing a walkthrough or other observation-based audit test
  • Video communications when asking clients questions enable an auditor to get the best evidence

4. Consideration of impairment

FRC guidance has been issued to confirm that the impact of the COVID-19 should be considered a non-adjusting post balance sheet event for year ends on or before 31 December 2019. This is because at that date the virus was a localised issue. However, during 2020 the world has clearly reacted as the outbreak has spread, so COVID-19 would be considered as part of an impairment review.

We have given some example implications for trustees and auditors based on common scheme year ends:

Scheme assets

  • For a 31 December 2019 year end, traditional impairment considerations of debtors will need to be enhanced. Where a debtor has since the year end been unable to pay, or has become insolvent, the trustees will need to consider whether COVID-19 was the deciding factor (in which case the debtor was otherwise good at the year-end) or whether the counterparty was in financial difficulty anyway (in which case a bad debt provision would still be appropriate).
  • For a 31 March or 5 April 2020 year end, the financial statements will need to be adjusted for the effects of the COVID-19 pandemic on year end balances. This could affect some valuations where markets had become inactive by the year end and valuation techniques are needed to estimate fair values.


  • For a 31 December 2019 year end there may be inconsistencies between forecasts prepared by trustees. For an impairment review, they would be based on information available at 31 December 2019, and so not consider COVID-19, while for a going concern assessment (as explained below) trustees would consider the implications.
  • For a 31 March or 5 April 2020 year end, forecasts used for going concern and impairment should be consistent and take into account the best available evidence of the impact of COVID-19.


  • FRS 102 requires disclosure of key judgements and estimates. Whether COVID-19 is an adjusting or non-adjusting event could be a key judgement and the impact of the virus on forecasts used for various impairments would probably be a key estimate.

5. Other implications for financial statements

In addition to the above, disclosure will need to be considered in the following areas:

  • Narrative reporting in the trustees’ report and principal risks and uncertainties should report the impact and any mitigating actions in the year and on the risks for future years
  • Post balance sheet event disclosures where the COVID-19 has been considered a non-adjusting event would be needed
  • Some fair value measurements may now rely on more unobservable inputs as some markets become inactive, which, in addition to more work to justify the valuation, may also trigger additional disclosures
  • Certain RICS valuations of property are now being reported on a “material uncertainty” basis. Where this is the case the auditor may be unable to obtain sufficient appropriate audit evidence and include a limitation of scope qualification in the audit report

6. Auditor reporting

As noted above, it may be necessary to amend audit reports in light of COVID-19 for the following reasons:

A. Qualifications for limitations of scope relating to property or any other relevant assets

B. Material uncertainty relating to going concern, which would normally be a reference to issues with the principal employer’s business, future contributions, the scheme’s investments, or a combination of any of these. More detail would be given in the relevant note in the financial statements

C. Emphasis of matter paragraphs to draw attention to disclosures which are fundamental to a user’s understanding of the financial statements. It may draw attention to disclosures on going concern and/or other areas where COVID-19 impacts are disclosed, for example key judgements and estimates or disclosures on impairment or financial risks

In respect of situations A and B above, the trustees should discuss with the auditor whether there are any actions which could avoid the need for a modification. It may be necessary to delay signing of an audit report until sufficient evidence over going concern especially has been obtained. The FRC have acknowledged that delaying reporting is preferable to lowering the quality of audits.

7. Reporting dates

For some schemes, it may be appropriate to change their year-end by extending it until (hopefully) the peak of the pandemic has passed, and more normal operations can resume.

As a reminder of the relevant rules in this area:

      • Regulations made under the Pension Act 1995 permits a financial year end to be extended to no more than 18 months in length
      • The change in financial year end must be agreed by the trustees (and would normally be agreed before the year end has passed)

The effect of changing the year end on other areas such as scheme actuarial valuations, the availability of investment valuations, staff availability at the financial statement preparers and the trustees’ own timetable of events should also be considered.

Guidance is expected in April 2020 from the Pensions Regulator around their expectations of the timeliness of completion of financial statements.

It is anticipated, in the current climate, that additional time will be required by all parties to complete their work. For example, additional time for trustees to assess their scheme’s going concern, scheme administrators to prepare the scheme accounts and auditors to carry out any additional procedures as required. If this time is not allowed for in scheme timetables, then auditors are under instructions to consider if this is a limitation of scope on the audit which would result in a qualified audit opinion.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


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