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.
Martin Kleinbard is the founder of Granular Fintech LLC, which advises fintech lenders and vendors on processes and strategies. He previously helped stand up new consumer credit products and teams at American Express and Bread Finance (acquired by Alliance Data Systems in 2020) before leading the CFPB's market research in fintech topics such as BNPL and solar financing.
Astrid Malval-Beharry is the Founder and President of StratMaven, a boutique strategy consulting and M&A advisory firm specializing in the intersection of P&C Insurance and Technology. With over 20 years of experience in growth strategy and M&A, she partners with insurance providers, solution vendors, and private equity firms to drive innovation and value creation in the InsurTech sector.
Suzanne M. Holl, CPA, is executive president of Loss Prevention Services with CAMICO. With more than 30 years of experience in accounting, she draws on her Big Four public accounting and private industry background to provide CAMICO's policyholders with information on a wide variety of loss prevention and accounting issues.
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).
