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.
Darryl Wegner is a managing director in PKF O'Connor Davies' Forensic, Litigation and Valuation practice. Prior to joining PKF O'Connor Davies, he served as a special agent with the Federal Bureau of Investigation for 21 years where he conducted and led complex, multi-jurisdictional investigations involving anti-money laundering, financial and accounting fraud, securities fraud, insider trading, health care fraud, anti-bribery and anti-corruption, criminal antitrust, national security, counter threat finance and sanctions. He has extensive experience working with federal, state, local and international law enforcement and regulatory agencies. He began his FBI career in the Boston Field Office, investigating terrorism and white-collar crime while also serving as a crisis negotiator. He held several positions at FBI headquarters in Washington, D.C., including as the national leader of the bureau's Foreign Corrupt Practices Act, kleptocracy and antitrust programs, as one of the FBI's deputy chief human capital officers and led efforts to stand up a multidisciplinary nation state focused mission center. In addition to Boston and D.C., he was assigned to the FBI's Houston Field Office where he directed all white-collar crime investigations in southeast Texas. He started his professional career as an engineer in the automotive industry. After attending law school, he practiced as a corporate attorney for an international law firm in New York.
Gerald McMahon is a principal at W1 Global Inc. He has over 20 years of experience in the intelligence, national security and law enforcement communities. As the senior supervisory intelligence analyst for FBI Boston, he led one of the FBI's largest field intelligence programs comprising analysts, linguists and data specialists. He led teams, and interagency task forces covering the criminal, counterterrorism, counterintelligence and cyber programs. He has extensive experience managing crises and special events. In the FBI's Counterterrorism Division, McMahon advanced international terrorism investigations as an operations specialist, collaborating with domestic and international partners. As a tactical specialist on FBI Boston's Joint Terrorism Task Force, he conducted communications, network, and threat analysis. As a strategic analyst, McMahon authored analyses of current and emerging trends, with a focus on emerging technologies. McMahon is the recipient of two Office of the Director of National Intelligence Meritorious Unit Citation awards for his contributions to the 2006 US/UK Aviation Threat Task Force, and the 2013 Boston Marathon Bombing team. He was a Recanati-Kaplan Fellow with the Harvard Kennedy School of Government's Intelligence Project, where his research focused on the use of AI in intelligence analysis.
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).
