Global crises—whether economic downturns, inflation shocks, pandemics, geopolitical conflicts, or supply chain disruptions—have a direct impact on how businesses operate. These disruptions also significantly affect audit processes and tax compliance.
For auditors and tax professionals, crises are not just external events—they change risk levels, financial reporting assumptions, and regulatory expectations.
- Impact on Audit: Higher Risk & More Scrutiny
During global crises, auditors face increased pressure to reassess company risks.
A. Going Concern Assessment Becomes Critical
Auditors must evaluate whether a company can continue operating for the next 12 months.
Common crisis indicators:
- Declining revenue
- Cash flow shortages
- Loan repayment difficulties
- Market instability
This often leads to more “going concern” disclosures in audit reports.
B. More Audit Evidence Required
In uncertain times, auditors need stronger proof:
- More third-party confirmations
- Detailed bank verification
- Additional testing of transactions
- Greater focus on cut-off and valuation
Audits take longer and become more documentation-heavy.
C. Higher Risk of Financial Misstatement
Crises increase risk of:
- Revenue manipulation
- Understated liabilities
- Asset impairment not properly recorded
Auditors respond with expanded testing and deeper analysis.
- Impact on Tax: Policy Changes & Compliance Pressure
Global crises often lead governments to adjust tax policies to stabilize the economy.
A. Temporary Tax Relief or Incentives
Governments may introduce:
- Tax rebates
- Deferred tax payments
- SME relief schemes
- Incentives for specific industries
In Malaysia, such measures are administered by Lembaga Hasil Dalam Negeri Malaysia (LHDN) during economic challenges.
B. Increased Tax Audits After Crisis Periods
After crises stabilize, tax authorities often:
- Increase compliance checks
- Review past relief claims
- Conduct retrospective audits
Reason: To ensure taxpayers did not misuse relief programs.
C. Changes in Taxable Profit Due to Economic Decline
Crises affect:
- Lower business income
- Increased deductible expenses (losses, provisions)
- Higher impairment losses
This leads to:
- Lower taxable income
- More tax adjustments in financial statements
3. Impact on Businesses (Audit + Tax Combined
A. More Complex Financial Reporting
Companies must now account for:
- Impairment of assets
- Fair value adjustments
- Foreign exchange volatility
- Uncertain revenue projections
B. Cash Flow Pressure
Businesses may:
- Delay tax payments
- Request instalment plans
- Struggle with audit fees and compliance costs
C. Supply Chain & Cross-Border Issues
Global disruptions affect:
- Transfer pricing documentation
- Import/export valuation
- Foreign tax compliance
- Audit Standards Become More Conservative
During uncertain times, auditors tend to:
- Adopt stricter materiality thresholds
- Increase professional skepticism
- Focus more on estimates and judgments
This aligns with international auditing standards issued under the Malaysian auditing framework (MIA/ISA).
Global crises significantly reshape both audit and tax environments. Businesses must be more transparent, better documented, and more cautious in financial reporting.