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.
Aaron J. Harding is Head of Financial Wellness for Morgan Stanley at Work. In this role, he is responsible for developing and implementing human and tech-powered financial coaching capabilities to support and improve the financial well-being of participants across the Morgan Stanley At Work ecosystem.
Prior to joining Morgan Stanley, Aaron led PwC's Financial Education and Wellness team, providing strategic leadership for the design, development, and delivery of employee-focused financial well-being programs, including the assessments, digital tools and thought leadership to support them.
Aaron earned his MBA cum laude from the F.W. Olin Graduate School of Business at Babson College where he was an Olin Fellow, and a B.A. Cum Laude in Psychology from the University of Massachusetts, Boston.
Nischal Nadhamuni is the CTO and co-founder of Klarity. Prior to Klarity, he worked on AI applications at Airware, Flipkart and Mass General Hospital. His team's work at MGH (Massachusetts General Hospital) to detect cancer causing genes using machine learning was published in the Journal of Clinical Oncology. He graduated from the Massachusetts Institute of Technology with a Bachelor of Science in Computer Science.
Kathy Perrotte is CEO and co-founder of ActiveViam.
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).
