Questions for Audit Committees During the COVID-19 Crisis
As audit committees, management and auditors continue to wrestle with practical challenges of accounting, reporting and disclosing impacts of COVID-19, regulatory bodies including the SEC and PCAOB have issued recent guidance based on their observations and engagement.
To help guide organizations as they navigate these unprecedented challenges, we’ve summarized some of the significant takeaways and offer them in a series of questions for audit committees to consider in executing financial reporting responsibilities and ensuring audit quality.
Audit Specific Questions
- What unintended consequences of COVID-19 may increase incentives or pressures on management that may result in management override of controls?
- Are there changes in controls over financial reporting that need to be evaluated to ensure management certifications are adequate?
- Are we able to ensure continued proper segregation of duties and monitoring controls given changing physical work situations?
- Have any significant risks or material weaknesses been identified as a result of impacts from COVID-19?
- What changes in risk assessments have auditors determined need to be made and how will that impact the audit strategy?
- Are there known impediments – either by management or by the auditors – that may delay timely filing of financial statements? (e.g., lack of access or ability to obtain audit evidence or other information)
- What additional resources or expertise may be needed by management to properly account for judgments or estimates or changes related to circumstances brought on by COVID-19?
- What additional efforts may be required by the auditor to ensure the performance of a high-quality audit?
- Does my audit firm have the depth of or access to adequate resources to address complex accounting and auditing questions, including industry-specific matters, as they arise?
- Do my management teams, as well as my auditors, have the ability to properly supervise and direct the work of their staff and teams?
- Are there additional challenges in performing auditing procedures due to multi-geographical considerations?
- Has COVID-19 impacted circumstances that may call into question the company’s ability to continue as a going concern? What are management’s plans to address? How do these impact the auditor’s going concern evaluation?
- Are there any auditor independence issues that have arisen with respect to COVID-19?
Accounting and Reporting Specific Questions
- Has management adequately assessed changes in risk factors impacting our business? Are these appropriately reflected in our financial statements?
- Has management properly identified significant accounting areas where impacts from COVID-19 are likely? Has management further accounted for related income tax effects of these impacts?
- Have we properly accounted for and disclosed changes in significant estimates and judgments impacting the financial statements?
- Has management, along with the auditors, identified applicable relief opportunities with respect to the 2020 CARES Act and appropriately factored these into the accounting and reporting, including income tax effects, within the financial statements?
- Are there accounting or disclosure matters that have required significant consultations outside of the audit engagement team?
- Have the auditors and management identified significant or industry-specific matters related to the interaction of the CARES Act and GAAP or GAAS impacting our financial statements that need regulatory consultation?
- Has new information arisen regarding COVID-19 events contained in previously filed financial information that requires updating of current disclosures?
Corporate Governance Specific Questions
- As an audit committee, how are we maintaining our education with respect to COVID-19 considerations, relief efforts and related risks and opportunities?
- Are we appropriately engaging with internal and external stakeholders and providing transparent and consistent communications about significant impacts on our business?
- Are we allocating enough time and making ourselves available to discuss critical issues as they arise with management, the auditors and the board?
- Are we keeping the full board appropriately updated as to significant challenges with respect to financial accounting and reporting?
- Are we considering responses to anticipated questions from shareholders during upcoming annual meetings?
- Is management actively and effectively engaging with lenders, customers and other stakeholders in a timely and productive manner and are the results of those engagements reflected in the financial accounting and reporting?
- Are we, as a board committee, appropriately considering additional risks that have arisen related to other stated committee responsibilities as described in our Audit Committee Charter – e.g., COVID-19 cybersecurity and data privacy risks?
We encourage audit committees, management, as well as our own professionals to review the guidance referenced above and additional guidance anticipated to be released by regulators. We further encourage robust dialogue between our customers and our engagement teams around audit quality.
To stay up-to-date on the impacts of COVID-19, please visit MFA’s Coronavirus Resource Center.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice.
The information contained herein should not be construed as personalized investment advice. Investment in securities involves the risk of loss, and past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this document will come to pass. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that your portfolio will match or outperform any particular benchmark.
Information presented was obtained from sources deemed qualified and reliable; however, MFA makes no representations as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any forward-looking statements are believed to be reasonable; however, MFA gives no assurance that such expectations will prove to be correct.