The ups and downs in the economy during the novel coronavirus pandemic are causing audit committees at public companies to focus on the disclosures in their financial statements and SEC filings about the current and potential impacts of COVID-19, according to a new report from KPMG.
The report, Challenges Presented by COVID-19, found that companies are reassessing, enhancing or establishing new internal controls due to pandemic-related disruptions to their business operations. Meanwhile internal auditors are adjusting their audit plans and activities.
Jonathan Traub is managing principal and tax policy group leader in Deloitte Tax LLP's Washington National Tax Office. He was previously staff director for the House Ways and Means Committee, where he was responsible for developing legislative policies and strategy on issues in the committee's jurisdiction, including taxes, health care and trade.
Ben Callaghan is the chief experience officer at digital healthcare solution Empara.
Guy Gage III, LPC, is the co-owner of PartnersCoach Inc., a coaching and consulting firm working exclusively with CPA firms. He equips managers and partners to lead change initiatives and improve employee engagement in their firm. Holding a license in counseling (WV-LPC), he uses his experience in human and organizational behavior to coach firm leaders to break through resistance and create motivational environments. He has consulted with and coached CPA professionals for over 25 years in the U.S. and Europe, emphasizing firm growth and career fulfillment. In addition, he worked in a four-office CPA firm for almost eight years, giving him an inside look at the challenges firm leaders face. Reach him at (304) 677.0296 or Guy@PartnersCoach.com.
Forecasting has become more challenging, including developing assumptions for the recoverability of goodwill and nonfinancial assets, as well as the realizability of deferred tax assets, making going-concern determinations and figuring other asset impairments more difficult, according to the report.
Nevertheless, audit committees are adapting to the new environment, as their companies allow more flexibility for remote work. Among the biggest areas of concern cited by the 114 U.S. audit committee members polled by the KPMG Audit Committee Institute are disclosures about the current and potential effects of COVID-19 (79 percent), preparation of forward-looking cash flow estimates (48 percent), and impairment of nonfinancial assets such as goodwill and other intangible assets (43 percent).
Audit committee members indicated that the remote work environment accelerated by COVID-19 has so far had little impact on the efficiency and effectiveness of their interactions with the management team and auditors.
Companies are reassessing their internal controls in response to COVID-19-related disruptions to their business operations. The most commonly cited disruptions included return-to-work plans (73 percent), IT system access and authentication for remote workers (69 percent) and cybersecurity (66 percent).
Audit committee members expect some environmental, social and governance issues to get much more attention from boards as a result of COVID-19 and recent protests against systemic racism. Survey respondents cited employee health, safety and well-being (85 percent), diversity within the company including the boardroom (53 percent) and corporate reputation (39 percent) as areas of greater focus for boards.
The pandemic has also caused many audit committees to reassess the scope of their workload agendas in addition to their risk oversight responsibilities. Most audit committee members who responded to the survey cited oversight responsibilities for a variety of COVID-related risks, including financial risks (83 percent), legal and regulatory compliance (70 percent), cybersecurity (62 percent) and data privacy (42 percent).
