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.
Catherine Stihler (OBE, FRSE) is a distinguished international leader and open technology specialist who served on the Governor of Pennsylvania's AI task force. She has also collaborated with the World Economic Forum's AI Alliance, and provided valuable insights to the US National AI committee, establishing her as a key figure at the intersection of AI development and governance, among other notable achievements. With a career including two decades at the forefront of European policy creation and decision-making, she uniquely bridges regulation and innovation - helping organizations understand compliance and achieve goals. Catherine seamlessly combines an insider's knowledge of international institutions and business with a results-driven approach, showcasing a unique and practical perspective. She is also acting advisor for Vero AI, the new innovative AI startup behind the Iris platform and VIOLET Impact Model.
Dan Chu is the executive director of the Sierra Club Foundation.
Pegine Grayson, JD, CAP, is a senior vice president and director of Whittier Trust's Philanthropic Services department, leading a team of 14 in providing philanthropic advice to the company's high net worth clients and management services for their foundations and donor-advised funds.
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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).
