Eric Knachel is Partner at Deloitte & Touche LLP and Krista Parsons is Managing Director and Audit Committee Programs Leader at the Center for Board Effectiveness, Deloitte & Touche LLP. This post is based on their Deloitte memorandum.
The current business and economic landscape is unprecedented. With little to no warning, companies have had to adjust to a variety of challenges, including supply chain disruptions, government-mandated shutdowns, implications of the CARES Act, working remotely, and more. While companies have managed through these challenges for the past several months, this year-end close may be like no other as those issues continue to evolve and new challenges arise. This continued uncertainty in the business environment, combined with increasing the complexities and risk, will require a high degree of judgement as companies approach the year-end reporting cycle. Not surprisingly, audit committee oversight will be critical. In fulfilling their governance role, audit committees may want to discuss management’s approach and conclusions to 10 common topics during the year-end reporting cycle.
1. Forecasts and related impairment analyses
- Have forecasts and applicable impairment analyses been appropriately updated through year-end?
- Have multiple recovery scenarios been contemplated, and how are those scenarios utilized for forecasting and impairment testing purposes?
- How are cumulative historic losses, as well as projected losses (within different jurisdictions), contemplated in the recoverability of deferred tax assets?
2. Going concern
- Has management reassessed potential liquidity and working capital shortfalls, potential diminished demand for products or services, and contractual obligations?
- How has management considered potential government assistance?
- How have management’s current plans and the ability to effectively implement such plans been considered in the going concern analysis?
