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.
Leo Bernstein is the founder and CEO of LineSlip, a solution that transforms commercial insurance documents into actionable insurance intelligence for risk managers. LineSlip is currently used by industry leaders in diverse sectors including private equity, real estate, healthcare, hospitality, retail and more. A two-time entrepreneur, Leo has many years of experience in finance and real estate, which inspired him to found LineSlip.
Robby Sundberg, CPA, is senior vice president of development at Embark, a business advisory firm. He was formerly assistant controller at a subsidiary of Toyota Financial Services and worked in the internal audit group at Verizon and in the Dallas audit practice at Deloitte.
Lukasz Strozek serves as Chief Technology Officer at Hippo. He joined Hippo in December 2020 from ecommerce payments firm Bolt, where he was Vice President, Engineering. Prior to that, he co-founded Clara Lending, an online lender with a mission of making homeownership a reality, which was acquired by SoFi. At SoFi, he co-headed Engineering and was responsible for several of the company's new products. Earlier, at Bridgewater, he partnered directly with founder Ray Dalio, translating his vision into technology products. He is a Harvard graduate and holds a Stanford MBA. Lukasz calls Oakland home, together with his wife, daughter and two pandemic cats.
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).
