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.
Siddhartha Jha is the Founder, Chairman, and CEO of Arbol, an insurtech and global climate risk solutions platform. Sid is also a co-founder of dClimate, the first decentralized climate information ecosystem. Before Arbol and dClimate, he had over 13 years of experience in the financial industry, covering interest rates and commodities in quantitative research and trading roles. He launched an agriculture futures trading portfolio, managing over $100 million at a major commodity trading firm. He was the first analyst at a startup commodity hedge fund, which grew to manage over $600 million in assets. He was previously a Vice President of Interest Rates Strategy at J.P. Morgan.
Sid authored the well-received book "Interest Rate Markets," published in both English and Mandarin. He has taught financial markets at NYU and was on the board of a non-profit working with inner-city youth. Sid graduated from Harvard University with a B.A. Cum Laude in Applied Mathematics and M.A. in Statistics as part of a 4-year combined degree program.
Jason Ewas is a policy manager at the Aspen Institute's Financial Security Program.
Chip Castille is the founder and CEO of Lasso, a financial advice and wealth app. Previously, he was managing director and Global Retirement Strategist for BlackRock, where he was responsible for the development, product management and distribution of BlackRock's U.S. retirement strategies and services.
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).
