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.
Greg Hoffnagle is a partner in Goodwin’s Financial Industry group and Insurance practice. Mr. Hoffnagle guides insurtechs, emerging and technology companies, venture capital and private equity firms and other insurance-related service companies through cutting-edge compliance, regulatory and transactional matters.
With a particular focus on the intersection of insurance and technology, a considerable part of Mr. Hoffnagle's advisory work involves working with technology clients in creating innovative products and bringing them to market quickly, from choosing an operating structure to licensing and regulatory issues. Mr. Hoffnagle is an experienced litigator for complex insurance and reinsurance related disputes, as well as international commercial arbitrations and internal investigations. He is also a trusted advisor for companies and institutions on risk management issues and complex insurance claims.
Kristina Leach is a director of BFSI (banking, financial services and insurance) insights at Quantum Metric. As a go-to-market and industry lead, Kristina provides expertise that supports financial institutions ability to optimize the digital customer experience. Prior to joining Quantum Metric, Kristina earned her MBA at MIT Sloan School of Management and worked for Bain & Co, Fidelity Investments and MassMutual holding roles across various functions.
Matt Homer is executive in residence at Nyca Partners and former executive deputy superintendent of research and innovation at the New York State Department of Financial Services, where he oversaw the department’s efforts related to cryptocurrency.
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).
