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.
Slava Orekoff, co-founder and CEO of Numica, is a serial entrepreneur and global executive. He ran a $500 million P&L and spent over a decade at SAP, the world's largest enterprise software company, rising to senior vice president. He first built accounting software at the age of 17 and now brings more than 25 years of experience across business, accounting and technology. He holds an executive MBA from Stanford GSB and master's degrees in physics and economics, and is a mentor at the Stanford Venture Studio.
Nilmini Rubin is the chief policy officer at Hedera.
Jackson Fregeau is the CEO and co-founder of Quandri, the AI platform for insurance operations, serving hundreds of brokerages and agencies across North America. He co-founded the company in 2021 with his brother after seeing firsthand how the data-intensive, manual work embedded in agency operations was defining the ceiling on what the industry could deliver. Quandri pairs broker expertise with insurance-native AI speed and intelligence to create a new operating model that increases capacity, strengthens client relationships, and enables teams to operate more efficiently at scale.
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).
