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.
Ryan Mandell is the director of claims performance for Mitchell's Auto Physical Damage division. He works hand-in-hand with insurance executives and material damage leaders to provide actionable insights and consultative direction for their claims organizations. Prior to joining Mitchell, Mandell was director of Northern Operations for B&R Auto Wrecking, a manager for Precision Collision Auto Body, and a claims representative for Progressive Insurance. He frequently speaks at industry events on trends in auto insurance, collision repair and vehicle complexity and has been quoted in publications including The New York Times, Wired UK, Road & Track and Automotive News.
Phil Strazzulla is the Founder of SelectSoftware Reviews, a website dedicated to helping HR teams find and buy the right HR software through free, in depth advice and analysis. Phil started his career working in venture capital before getting his MBA at Harvard Business School.
Steve Jarrett brought significant law enforcement experience when he joined Westfield in 1999. He is a 22-year veteran of the Tampa Police Department.
He earned an MBA from Saint Leo University. He holds the FCLA (Fraud Claims Law Associate) designation from the American Educational Institute and the CIFI (Certified Insurance Fraud Investigator) designation from the International Association of Special Investigation Units.
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).
