• Reto Eberle, Partner |

Economic upheaval triggered by the coronavirus pandemic leaves an uncertain outlook for 2021.

In a volatile and challenging environment, what are the key topics for the Audit Committee?

For the Audit Committee, setting the right priorities can be a particular challenge. Our recommendations help you get it right.

Recommendation 1: Reassess your agenda and associated workload. Adjust both to reflect the change in circumstances.

Last year’s experience showed that crisis situations put pressure on the Audit Committee in particular. Risk management remains of central importance and must be reviewed continuously. Does the Audit Committee have sufficient time and expertise to monitor all risks (and have you considered cyber risks)? How are you addressing the increased compliance risks? What about the new ESG requirements?

Recommendation 2: Focus financial reporting on the impact of COVID-19 and on the internal control system.

Uncertainty as to how the pandemic will develop impacts financial reporting in many ways. Have you paid particular attention to impairment in the past financial year, especially goodwill and other intangibles, as well as fair values (of financial assets), and, if applicable, the going concern assumption? There will also be questions about disclosures on the impact of COVID-19 as well as the presentation of non-financial KPIs. Your internal control system needs to be adjusted as risks have shifted. Have you verified that IT controls have been adapted in light of remote working scenarios, and that related cyber risks are considered?

Recommendation 3: Understand the implications of COVID-19 for your auditor’s activities.

As the Audit Committee, you should have an understanding of the auditor’s concerns and responsibilities in the context of COVID-19. The change in the overall risk environment has led auditors to reassess the risks of material misstatement in the financial statements. Beside the topics of going concern, impairment and cyber risks – as mentioned above – areas of relevance in Switzerland include COVID-19 bridging loans and their use as well as the corresponding provisions of the Joint and Several Guarantee Act (Solidarbürgschaftsgesetz), where applicable. Particularly in the case of national regulations, it is important to understand whether there will be tasks for the auditors as a result and, if so, which. Discuss these points in advance with your auditors. Also talk about how a lockdown, for example, would impact the audit and work schedule.

Recommendation 4: Don’t forget to consider non-financial reporting, e.g. ESG disclosures.

Internationally, institutional investors as well as legislators and regulators are increasingly imposing ESG reporting requirements. It is to be expected that Swiss companies will face equivalent demands, even in the absence of legislation. The Board of Directors would therefore be well advised to take a closer look at ESG issues within the company, while the Audit Committee should critically assess reporting on the subject. Companies should aim to provide credible and, above all, meaningful information on their ESG activities and how they’re quantified and measured.

Recommendation 5: Gain an understanding of how technology impacts the finance function/department.

COVID-19 has triggered an unprecedented digitalization push, forcing certain industries to scrutinize their business models. Lockdown regulations meant that many employees had to work from home, which accelerated internal adoption of new technologies within the company. With its structured data, finance as an area lends itself well to data analytics tools. Have you considered the specific opportunities of cloud technologies, robotics (or bots), data analytics tools and artificial intelligence in the finance function? And have you looked at how they impact the skills and knowledge of your people?

Recommendation 6: Ensure that internal audit focuses on the most critical risks, including those related to COVID-19.

Do you take a suitably risk-focused and flexible approach to planning internal audit work? As the Audit Committee, you should discuss the risk assessment with the internal audit manager and work to ensure that new risks are taken into account in the planning process. Travel restrictions also affect internal audit. How do you ensure that the most critical risks are addressed and that scheduled audits can still be carried out? How do travel restrictions affect the performance of the audits?

Recommendation 7: Review whether compliance risks and the compliance program are up to date.

On the one hand, the changed conditions (working from home) increase the risk of tortious acts. On the other, many new regulations also harbor risks if a company fails to comply. Has your company taken the changed circumstances into account? Especially in times of great uncertainty, it’s important for management to emphasize corporate values and lead by example. Is this true of your company? Do you pay enough attention (in what you say and how you act) to employees and their concerns?

Find a more detailed presentation of these recommendations at KPMG Board Leadership Center – 2021 Audit Committee Agenda (PDF).

Also, you might find the following publications interesting as well:

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