Financial Reporting in a Pandemic
The majority of companies have been affected in some way by the global pandemic this year, whether their sector has taken a direct hit, such as in hospitality, tourism or retail, or an indirect one through delays in supply chain or a decrease in demand for products. There are of course numerous exceptions as the world pivoted online (video communications, online entertainment, wellbeing), but overall, most organisations will have suffered, reflecting the wider economy at large. Most finance teams have also had to switch to remote working and react to rapidly changing guidelines too, which makes the job of financial reporting more difficult than normal this year and possibly next. However, annual and interim reports are as mandatory as ever and trading statements still need to be issued, so it’s vital that businesses consider and include the impact of COVID-19 in all their financial reporting. It’s not only a platform to explain to stakeholders the effects of the pandemic on profitability, staffing and strategy, but also an opportunity to underline any positives that will help take a business forward and survive this period. There are too many fine details to list every element of reporting that may need to be reconsidered due to the effects of the coronavirus pandemic, from the deferral of filing deadlines to the recoverability of assets or the measurement of liabilities, but three key areas that will need close attention are: 1. Forecasting The pandemic has challenged even those companies with the most stringent contingency and disaster recovery plans in place, to the extent that forecasts or strategic reports are going to involve a considerable number of estimates at the moment. However, forecasting is important for stakeholders, particularly if any reports have been delayed, as they tell a story beyond the balance sheet. With so much uncertainty worldwide, reforecasting is advised every time new information comes to light, whether that be new government guidelines in terms of restrictions, new working conditions or new consumer behaviour. Forecasts are also a chance to show how the company is reacting and intends to react to the current situation, in terms of reducing costs where necessary, preserving cash, or looking at a new opportunity. 2. Asset impairments Companies also need to assess whether the impact of Covid-19 has resulted in an asset impairment, in addition to the regular testing of assets that takes place. If any trigger event has occurred, such as the loss of key supplier or disrupted production, the impact of the impairment must be calculated, as well as its effect on other assumptions such as cash flow or growth rate. Ceasing operations for a period or suffering a sharp decline in demand are events that would indicate impairment, and these circumstances must be noted in detail, as the impact on assets must be direct rather than generic. For example, in retail, the closure of a store due to zero footfall would be a direct impairment of an asset due to COVID-19. 3. Disclosures In the wake of the pandemic, disclosures will in all likelihood need to go above and beyond what has been typically disclosed in previous years. There is no standard format for this in times like these, because the impact on businesses has been unique to many, but it’s imperative that all events and their estimated financial consequences are disclosed in detail. Financial reporting taking place now may well be the first time that stakeholders will be able to see COVID-19 reflected in the numbers, in terms of assets, liabilities, income and expenses, so it will be crucial to be accurate in disclosures. How has your Finance team coped with any reporting in the midst of the pandemic? It is business as usual or are the team stretched? Let us know if we can help. Follow us on Linkedin now!
