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Auditing, reporting and recovering from the pandemic

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Sep 01, 2020

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Audit committee and auditor oversight update

This Update summarizes recent developments relating to public company audit committees and their oversight of financial reporting and of the company’s relationship with its auditor. This update includes: (i) COVID-19 disclosure and financial reporting guidance: Part III, (ii) IIA and IFAC issue an audit committee call to action on COVID-19; (iii) G&A finds that 90 percent of the S&P 500 publish a sustainability report; (iv) Want to improve the reliability of your ESG reporting? The CAQ suggests asking your auditor for help; (v) Protiviti’s annual survey finds rising SOX compliance costs; (vi) Thinking of replacing your auditor’s tax services? Get ready for a higher tax bill – At least temporarily; and (vii) The Audit Blog

Auditing goes remote

The COVID 19 pandemic dramatically altered the day-to-day existence of most companies. Though businesses may have had remote-work contingency plans in place, few could have expected the need to implement these procedures almost overnight. And just as state governments enacted shutdowns requiring all non-essential workers to work remotely, many businesses were working with their auditors to finalize year-end financial statement audits and other attest reporting.

Key considerations for issuers and auditors regarding going-concern analysis

Issuers in the United States and their auditors have related, but distinct, obligations to evaluate on a periodic basis whether there is substantial doubt about the issuer’s ability to continue as a going concern. In normal times, this evaluation, conducted with an appropriate level of diligence, results as to almost all major public companies in the conclusion that there is no substantial doubt about the entity’s ability to meet its obligations in the months to come.

But these are not normal times. As the COVID-19 crisis takes an ever-greater toll on the American economy, and as multiple well-known companies declare bankruptcy, the going-concern assessment has taken on new relevance for issuers, auditors, and others in the financial-reporting community.  As a result, the number of issuer filings that contain a going-concern disclosure appears to have substantially increased. In this piece, we review some of the significant considerations that apply to the going-concern analysis from both the issuer’s and the auditor’s perspectives.

Digital Transformation: Powering the great reset

COVID-19 is a watershed moment for the digital transformation of business. The rules for success have changed and are ever more reliant on harnessing the power of digital models to create new value and experiences. Accelerating digital transformation, with purpose, is essential for companies to survive and thrive in the new normal. Successful leaders will now seize the opportunity to advance a new trajectory for digital transformation that aligns with the changing role of business: to be a powerful enabler of long-term value creation for all its stakeholders.

Boards beware: Increase in cyber attacks reveals new weaknesses

As the pandemic persists, corporate leadership must closely follow cybersecurity risks, vulnerabilities, and threats as bad actors take advantage of increased work-from-home scenarios—in which companies perhaps haven’t fully focused on security. These risks left unchecked have the potential to put company assets and viability in peril.

Reimagining the urban office

The Covid-19 pandemic has abruptly challenged a decade of corporate real estate and workplace design decisions by calling into question the purpose of large centralized office locations. With many organizations maintaining work-from-home policies for the foreseeable future, we argue that now is an optimal time to plan for a post-pandemic workplace strategy by revisiting the conventional wisdom behind the centralized office. A more distributed model throughout cities and geographic regions, we believe, would better support employee performance and organizational resiliency while contributing to the improvement of the urban landscape and local communities.

Don’t let the pandemic sink your company culture

If you are like many of the executives with whom we’ve been talking over the last few months, you and your leadership team invested years cultivating an effective culture — one that is both strategically relevant, because it prioritizes the behaviors essential to the success of your business, and strong, in the sense that employees trust that it is real and value it. Such cultures help companies attract and retain great people and contribute to fantastic bottom-line performance.

Emerging pathways towards a post-COVID-19 reset and recovery

The COVID-19 crisis and the political, economic, and social disruptions it has caused have exposed the inadequacies of our current economic systems. Amid global concern for lives, livelihoods, and the planet, leaders find themselves at a historic crossroads for shaping the recovery and are challenged to reset economies on a new trajectory of more inclusive and sustainable growth. This edition of the World Economic Forum’s Chief Economists Outlook sets out a high-level agenda for a path forward on three key challenges: How can economic policy be retooled to reduce inequality and improve social mobility? What will be the new sources of economic growth? How will success be defined?

Q2 Reporting: How should a U.S. public company quantify the impact of COVID-19?

U.S. public companies are thinking about how to quantify the effects of COVID-19 in their second-quarter public disclosures. Unlike the first quarter, they have now seen three full months of COVID-19 impact, with complex effects that varied within the period and across geographies and segments.  The effects are important for understanding Q2 results, and for anticipating results going forward – which in turn implicates a host of issues, including liquidity, funding, covenant compliance, impairment testing and going concern analysis. So there are good reasons to try to quantify the impact of COVID-19, and the SEC has encouraged “robust disclosure and engagement” in the COVID-19 context, with particular emphasis on the need for forward-looking disclosures.

Fast-track solution for COVID-19 dispute resolution

COVID-19 has made it difficult for many companies to perform some of their contractual obligations, giving rise to a high number of corporate disputes, particularly relating to the application of force majeure and change in law provisions. The volume and similarity of potential claims means traditional dispute resolution methods are too slow, burdensome and costly to expedite swift resolution. With this in mind, we have developed NRF Covid Resolve, a dispute resolution process supported through a single online platform, that aims to achieve an outcome for each dispute within six weeks – or four weeks if arbitration-only.

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