ICFR: How Will COVID-19 Impact Material Weaknesses?
A FEI report on ICFR addresses the potential implications of the COVID-19 crisis on the assessment of whether material weaknesses in internal controls exist. Not surprisingly, this excerpt suggests that we’re likely to see more conclusions that material weaknesses exist than we have in recent years:
We’ll definitely see an increase in delayed filings and we’ll likely see an increase in material weakness disclosures. If remote work arrangements, facility closures or unavailability of key personnel due to illness result in an inability to apply or test control procedures, management may be forced to conclude that one or more material weaknesses in internal control exist, unless compensating preventive or detective controls are in place and able to be tested.
Satisfying the external auditors with sufficient evidence that controls are performing as intended could also be challenging in this environment. For example, people working remotely may not have access to typical work tools such as printers and scanners, making it difficult to evidence control performance.
The article also cautions that pandemic-related declines in earnings, revenues and other materiality benchmarks could also result in the inclusion of some items in the scope of this year’s internal control assessment that were excluded in prior years.
-John Jenkins, TheCorporateCounsel.net July 8, 2020
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