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.
Amar Patel is director of cost segregation at KBKG. Previously, he spent 15 years at a Big Four accounting firm and one year at Centiv LLC, focusing on various specialty tax products including cost recovery solutions and research and development tax credits. In the past 16 years of practice, he has specialized in cost segregation and large fixed asset depreciation reviews for purposes of identifying federal, state and property tax benefits.
Serhat Guven is Willis Towers Watson’s Insurance Consulting & Technology Global Leader for P&C Pricing, Product, Claims, and Underwriting propostion. He and his team are responsible for the delivery of consulting services and technology solutions that are uniquely designed to help insurers respond to significant industry trends; as well as provide carriers support in core areas that are fundamental for effective business management and profitability.
Prior to his current role, Serhat Guven was Willis Towers Watson’s Regional Line of Business Leader for the Americas. In this capacity he was responsible for go to market strategy and development of the full range of consulting services and software solutions to insurance companies. Before joining Willis Towers Watson, Serhat spent nine years in a variety of positions at United Services Automobile Association (USAA), where he was the technical expert on multivariate pricing, demand modeling, classification and tiering analysis, territorial ratemaking, and data management.
Serhat’s primary area of expertise is developing advanced analytics solutions for a wide variety of insurance applications.
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).
