Accounting resilience and sustainability in a post-pandemic economy
From a financial market perspective, the novel coronavirus pandemic has led to global economic uncertainty and volatility. With such widespread impact, the economic effects are disrupting day-to-day accounting procedures. With the COVID-19 landscape presenting unique challenges that delay information from flowing into the accounting department, accountants must be better positioned to thrive in a post-pandemic economy. Here’s how:
Focus on liquidity
It is important for accountants to shift focus beyond the P&L in a volatile market, especially in the short-term. As the saying goes, cash is king. Accountants should focus their efforts on improving liquidity, specifically with such activities as accounts receivable and accounts payable, which will go a long way in conserving cash.
The focus should be on the balance sheet to ensure dynamic and strategic decisions are being made currently. Materiality, for one, may require reassessment and short-term financing alternatives to be further explored. Furthermore, your capital investment decision matrix may also need to be adjusted, especially from a lease vs. buy perspective. The importance is liquidity and securing cash-flow in the short-term as sale-leasebacks are an increasing lease event in the market. Other key accounting actions to consider include performance timing of events which may require reassessment, lease extensions and renewals, and fair value remeasurement and impairment.
Resourcefulness and intelligence
In light of the economic volatility caused by the pandemic, securities exchange commissions have offered certain leniencies. The Canadian Securities Administrators (CSA) has agreed to offer a 45-day extension for periodic filings that were due on or before June 1, 2020. These include management’s discussion and analysis reports as well as financial statement disclosures (Ontario Securities Commission, 2020). The U.S. Securities Exchange Commission has followed suite, offering a 45-day extension for the same filings due between March 1 and July 1, 2020. Companies electing to extend their filing date should include an 8-K form for each delayed filing. Each 8-K form must disclose the reasons why it could not file on time, the estimated new filing date, and company-specific risk factors explaining the material impact of COVID-19 on the business. Accountants will need to be aware of and compliant with the changes in regulatory requirements along with possible additional tasks of updating their company’s earnings guidance and/or filing 8-K forms.
The accounting standard boards have also made certain modifications as a result of the current economic landscape. From a leasing perspective, both GASB and FASB have proposed to postpone the effective dates to comply with new leasing standards for certain entities. Furthermore, the IASB and FASB have proposed amendments to the reporting of rent concessions granted by lessors, in that lessees can elect not to treat concessions with the modification guidance.
The rapidly shifting business environment, along with the leniencies being offered by the accounting standard boards, may significantly impact business developments and process reengineering. Accountants must be active in order to adapt to the potential election of these measures as these changes will affect day-to-day workflow. From a leasing perspective, anticipated events such as impairment, extensions and terminations will need to be analyzed and triggered as an overall business decision. Accountants will need to be dynamic and more engaged in these processes. The goal is to pull information while being compliant in the financial reporting completeness, per regulatory requirements. Timeliness is also an important factor as these strategic decisions can have material impacts on financial statements.
The financial markets have shown some improvements as we’ve entered into Q2, with the Dow increasing 15 percent throughout April 2020. While this may be a promising trend, from a macroeconomic, financial recovery standpoint, these developments have yet to trickle down more broadly to individual companies. Sadly, as of April 30, 2020, the U.S. reported over 30 million people unemployed over a six-week period, and a GDP that slumped 4.8 percent during the same time. The reality is, our economy is still suffering as a result of the pandemic.
Accountants rely on timely and accurate information flowing from other departments in their organization to file periodic financial statements on time and complete the full accounting cycle. Accounting also has the fiduciary responsibility to compliantly disclose any ongoing variances, as well as previously reported earnings guidance expected from reasonable material uncertainties.
The global response to the COVID-19 pandemic is, however, presenting organizations with unique challenges, including supply chain, staffing and real estate disruptions. Combined, these factors may delay information from flowing into the accounting department. While operational decisions may be delayed due to tightened resources, information still has to travel to accountants for proper reporting, journal entries, reconciliations and disclosures.
The potential issues are not limited to data lags and reduced resources, but also bottlenecks in the overall delegation of responsibility in the chain of command. As the pandemic can cause absenteeism and disruption at every level of a company, including management and board levels, it can be difficult for accountants to have both the access to the information they require and the agency to respond quickly.
Perhaps one of the most significant changes for accountants has been the rise of the remote workforce. Audit committee meetings are being held virtually instead of face-to-face, and office equipment assignment, VPN accesses, and broadband internet services have shown readiness and efficiency hindrances. These are areas of concern given additional, time-sensitive responsibilities levied on accountants due to COVID-19, including the potential of filing additional 8-Ks, performing adjusting entries, or re-testing for materiality, to name a few.
Today’s accountants should think and work outside the box, examining and analyzing leading-edge accounting solutions. According to a 2019 survey by Gartner, 70 percent of organizations plan to use technology to assist employee productivity by 2021. Together, automation tools, AI, and other cloud and SaaS products (to name a few) offer efficiency, transparency and flexibility to work on dynamic tasks. Now, in this new era of COVID-19, there has never been a more crucial time for accountants to actively engage in innovation. Automating certain accounting tasks can improve information flow with all stakeholders and allow businesses to adapt to the day-to-day requirements of a typical accountant.
Think like a business leader
It is essential for accountants to understand their business beyond their role in accounting. Knowing how information travels from operations to supply chain management to financial planning before arriving at accounting is essential to improve the accounting cycle flow in times of crisis.
In times of uncertainty, revisions of materiality, financing options, and capital investment or divestment are subject to take place more frequently. As such, accountants will need to implement additional measures, tasks and processes to pivot from being reactive to proactive.
Due to the potentially altered working conditions and reduced availability of resources, those working in finance and accounting will be required to think like business leaders, prioritize communication, and engage with their teams to empower their organizations to respond quickly and efficiently to the market’s instability while strategizing for long-term sustainability.