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.
Deven Sanghavi has completed his bachelor's in accounting from the University of Mumbai and a master's in finance from CUNY Baruch College. He brings strong experience in the field of public accounting by having worked at a Big Four firm. He currently is working in an investment firm.
Lexi Clarke is the Chief People Officer for Payscale, a SaaS technology firm focusing on compensation management solutions. She has partnered with business leaders on HR and compensation projects at companies like Redfin, Convoy, Boeing and more. Lexi has extensive experience in people-first HR leadership, effectively supporting the growth and scale of the organizations she has been a part of to better attract, develop and retain talent. As the Chief People Officer, she is responsible for integrating compensation, rewards, HR, communication and more. She speaks on behalf of Payscale as both a practitioner and fair pay advocate. Lexi graduated from Muhlenberg College with a bachelor's degree in psychology.
Shift Technology CEO and Co-founder Jeremy Jawish became acutely aware that fraud detection was one area of the insurance industry that was ripe for disruption while working with a leading global insurance company. There, the seed was planted related to how artificial intelligence and advanced data science could be used to help insurers make better policy and claims decisions, driving positive business outcomes and greater customer satisfaction. Jawish, along with co-founders Eric Sibony and David Durrleman transformed the idea into reality and now insurers around the world trust Shift's AI-native solutions to help them solve some of their biggest challenges.
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).
