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.
Dushyant Sengar is the director with the valuation & capital markets analysis team.
Shan Haq is vice president of corporate strategy and development at Transcepta, a cloud-based AP automation platform. Haq is responsible for shaping Transcepta's strategy for new markets, products and alliances. Through leadership roles in corporate strategy, marketing and product management, Haq has successfully grown businesses within Microsoft, Deloitte Consulting and Boeing Space and Technology.
Rama Sreenivasan is co-founder and CEO of Blitzz, a live, app-free remote video support and inspection platform. Sreenivasan has led the company through its initial inception, launch, and subsequent growth to several million video support minutes per month. Major customers include BMW, Sealy, Fedex, and Rogers telecommunications.
Before founding Blitzz in 2017, Rama spent several years working as a scientist and educator. His biggest joy comes from helping others solve their problems and he is passionate about finding effective ways to disseminate knowledge. Sreenivasan has a PhD and MS in chemical engineering from the University of Maryland, College Park. He also did his post doctoral research at MIT in Cambridge, Boston.
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).
