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.
Scott McFarlane co-founded Avalara in 2004 and is the company's CEO. Avalara started as a provider of digital sales tax compliance solutions in the U.S. and has grown globally to become a market leader in compliance automation software. Avalara's mission is to be part of every transaction in the world by automating the compliance journey for businesses of all sizes.
Richard Wickliffe, CPCU, ARM, CLU has been in leadership in the insurance industry for over 20 years. He has been a keynote speaker about unique fraud and insurance crimes at venues including a CPCU conferment and the FBI's InfraGard Counterterrorism conferences, where he received the FBI's Exceptional Service in the Public Interest Award. He's also the author of award-winning crime fiction, as well an upcoming non-fiction about insurance crimes. He can be reached at RLWickliffe@yahoo.com.
Caroline Savello is Color's President, leading the company's work with over 1500 private and public health organizations including employers, funds, plans, and government institutions. Prior to joining Color in 2018, she worked at Bloomberg LP in their global media business, and began her career at the Boston Consulting Group where she focused on global and public health. She is a graduate of Yale University with a joint B.A./M.A. in political science.
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).
