The rapid outbreak of the coronavirus is having a profound impact on business. As viruses know no borders, the impacts will continue to spread.
Below we have gathered the major Covid-19 related themes that our clients are talking to us about. We hope that that these can help you understand your exposures to Covid-19, and more importantly, position your business to be resilient in the face of this global threat.
The fluid and evolving nature of the Covid-19 situation has shown the need for very agile and flexible planning. It is testing our disaster recovery planning programmes in very real ways. Some fundamentals that we are seeing at our clients:
Productivity will undoubtedly be lost in many sectors in the event of a Covid-19 shut down. However we need to manage against a presumption of cessation of all business activities just because people can’t physically be at work. Some ways to ensure as much productive activity as possible is maintained:
Availability of IT operations
Availability of IT operations could be fundamentally important to minimise the impact of Covid-19 on your business. Some of the key things to think about:
Companies are fire-fighting on many levels. The Covid-19 virus has the potential to cause major business disruption and destabilisation. The situation is evolving very quickly. Flexible strategies, potentially including the use of short-term outsourcing options, will need to be devised and deployed to preserve trading activities and financial standing. This will require effective governance and real-time decision making, enabled by technologies.
Working capital/Cash management
Covid-19 related business disruption is highly likely to cause significant strain on cash generation and conversion.
Organisations will need to preserve and drive out cash flows, optimise working capital and enhance visibility over the level and timing of funding requirements.
This will involve developing and refining robust cash flows models and implementing rapid operational improvements, such as:
Companies are experiencing adverse trading conditions which will inevitably lead to debt default and/or covenant breach events. Navigating through this period will be challenging and requires evaluation of funding options together with negotiation of re-financing, covenant adjustments and facility extensions. Lender relationships will need to be managed carefully as restructuring and/or recapitalisation options are worked through.
In today's just-in-time inventory management world our supply chains are going to be disrupted in the short term by Covid-19. A few mitigating actions that we should consider:
Over the medium term we may need to reconsider the overall approach to supply chain management.
Ensure you are aware of the various tax implications that could arise, including:
For further information, read our guides
Companies should monitor the current and potential effects that the Covid-19 outbreak may have on disclosures and should strongly consider the following four items to help ensure that their financial reporting and audit processes are as robust as possible.
Companies should consider their disclosure obligations regarding business risks related to the impacts of Covid-19 within the context of their local regulatory requirements. Disclosures should be specific to individual circumstances, avoiding broad or generic language.
Accounting and financial reporting, including subsequent events
Companies should consider whether economic uncertainties and market volatility have or will affect accounting conclusions. Additionally, companies should evaluate whether events occurring after the reporting period, but before the financial statements for that period have been issued, require disclosure or possibly recognition.
Ability to obtain information
A company’s ability to obtain and provide financial statements or information could be impacted. Companies with significant operations in countries affected may encounter delays in receiving financial data for consolidated financial statements as a result.
Internal control over financial reporting (ICFR)
Companies with significant global operations should consider whether there is any effect on internal control over financial reporting due to the local impacts of Covid-19. For example, new controls may be implemented and/or revised as companies start to modify IT access to enable remote workforces. Disclosure of material changes would need to be disclosed in ICFR.