Honeywell invents and commercializes technologies that address
some of the world’s most critical challenges around energy, security,
air travel, productivity, and global urbanization. In their executive
summary of the 2021 10-K Annual filing, Honeywell continued their
growth in sales and despite the challenges they faced due to the
COVID-19 Pandemic. As with any business operating during these
challenging times, risks associated with COVID-19 could have
potential negative impacts concerning their receivables and payables
Honeywell International 10-K Reporting
The below risks identified by management could lead to overstated
revenue and understated liabilities:
• Existing and potential customers and their end-users may
continue to take actions to reduce or suspend operations,
reduce or delay spending, cancel contracts, or cut costs in a
manner that reduces the demand for products and services.
• There are risks that current customer who have open credit
with Honeywell may potentially run into financial strains that
limit their ability to make payments on a timely basis or at all.
• Closures of facilities, restricting access to facilities from
employees, materials and labor shortages and disruptions to
suppliers as well as providers who deliver goods could disrupt
Honeywell’s ability to continue their growth in the industry
which can cause termination of customer contracts.
As an auditor, understanding the client and internal controls is
imperative in recognizing areas that need to be tested. With the
pandemic as an increasing risk, the first step is to review the financials
and audits from previous years. Find a starting and end point before
the pandemic began because more than likely, internal controls
changed due to the pandemic, and identifying when those changes
were made creates a baseline for auditors. In the article “Tips for
auditing with changed controls during the pandemic” published by
the Journal of Accountancy, auditing a company during a pandemic
needs to be treated like a new client. Obtain the understanding of
what controls are now in place and how were the transactions
processed and what controls were in place at whichever point in time
that transition occurred (Dohrer, 2020).
Additionally, the following substantive tests should be performed:
• Trace invoices to sales
• Test ending cash balances
• Ascertain completeness of revenue and financial data accuracy
• Accounts payable balances reported on the balance sheet
include all payable transactions for the accounting period
• Payable balances reported on the balance sheet actually exist at
the reporting date
• The company owes a liability for accounts payable as at
reporting date.
References
Dohrer, B. (2020). Tips for auditing with changed controls during the
pandemic.
Journal of Accountancy
, n.p. Retrieved from
https://www.journalofaccountancy.com/news/2020/apr/auditing-
with-changed-controls-during-coronavirus-pandemic.html
