COVID-19 disclosures remain a top area of focus for audit committees, according to a KPMG survey. Specifically, the uncertainty caused by the pandemic — along with expectations for companies to deliver forward-looking information and analysis — are leading to substantial discussion on disclosures about the pandemic’s effect on business, the preparation of forward-looking cash flow estimates, impairments, use of non-GAAP financial metrics and other topics.
A Deloitte memo suggests questions that audit committees should ask to ensure that disclosure is accurate and transparent. Here are a few:
– Is data from the 2008 financial crisis being used to benchmark the timing and pattern of recovery from the current pandemic? Has management carefully considered the differences between the two economic periods?
– What “new normal” conditions or future trends are included in the forecast assumptions?
– In considering the use of non-GAAP measures, has the company considered what costs might be part of the “new normal” and how certain non-GAAP adjustments may impact comparability in the future?
– Has the company reassessed its volatility assumption when valuing new stock awards in light recent market volatility?
– Has the company modified any significant contracts, particularly contracts with customers and leases?
Both memos note that audit committees are also focusing on reassessing or changing internal controls due to return-to-work plans, virtual working and cybersecurity — and that internal auditors are adjusting audit plans and activities to identify emerging risks posed by the pandemic. The KPMG survey says that audit committee members also indicated that they expect employee safety and diversity issues, as well as supply chain resilience and corporate reputation, to get significantly more attention from the board as a result of COVID-19 and recent protests against systemic racism.
-Liz Dunshee, TheCoporateCounsel.net October 15, 2020