Responding to the impact of COVID-19 on financial reporting

Common issues that many CEOs, CFOs and their organisations are facing since the COVID-19 outbreak

The outbreak of COVID-19 and resultant reduced economic activity have led to disruptions and challenges for many organisations. Below are some of the key common issues and challenges that organisations need to respond to immediately:

Managing cash and forecasting cash flows

• Ability to keep up with rapidly changing economic and environmental factors and determine the implications on cash flows and liquidity in order to maintain a strong balance sheet

Scenario planning and analysis

• Having the right information to plan for known impacts and disruptions and identifying ‘no regrets’ activities which should be implemented now to ensure business continuity and maintain credit rating/score

• Scenario planning around cost reductions and impact on margins

• Understanding the implications on financial reporting obligations and interpreting guidance released by the regulators

Financial reporting and regulation

• Understanding what funding is available and how can it be accessed

Access to funding and capital raising

Workforce disruption and considerations

• Continuity of critical transaction-processing activities and having the right skills, technical capabilities and capacity within the existing team in order to enable management to make business-critical decisions

As a part of an effective response strategy, CEOs and CFOs need to consider the various options available, including scenario planning to unlock capital, analysing short-term cash flow requirements, need to raise capital and access to funding, managing financial reporting and compliance with regulations, and navigating workforce disruption. Management can consider the following measures as part of their response to the various business issues:

Scenario planning and analysis

• Evaluate carve-outs/divestitures to unlock capital

• Evaluate business restructuring, including group reorganisations and simplifications

• Evaluate M&A for distressed assets/business• Assess tax reporting or obligations• Assess short-term cash flow forecasting and

working capital assumptions

Access to funding and capital raising

• Assess need for capital raising from primary market – rights issues or bond issues

• Evaluate debt refinancing/structuring• Assess alternative sources of debt – supplier credit/

factoring arrangements• Assess financial reporting readiness for fund/capital

raising• Effective and efficient project management

What organisations should consider as part of their response strategy

Financial reporting and regulation

• Impairment reviews – financial and non-financial assets

• Inventory obsolescence and valuation issues• Debt restructuring – lower interest rates, moratorium

and renegotiation of repayment terms could trigger debt modification or extinguishment accounting

• Covenant reporting and advice – potential loan covenant breaches or default

• Stock compensation and incentive plans – modifications due to changes to earnings/performance targets

• Recoverability of deferred tax assets based on projections of future profitability

• Reporting impact of COVID-19 on financial results and disclosures

• Assessment of any relief or bailout from government as grant

• Going concern analysis and disclosures, including risks and uncertainties

Workforce disruption and considerations

• Focus on financial reporting close process using remote working technologies to ensure business continuity

• Assessing need for technical accounting memos for complex areas

• Use of digital tools to accumulate, aggregate and analyse data

• Drafting robust disclosures to ensure compliance with regulatory and reporting requirements

• Project management of finance closing process to ensure filing deadlines are met

pwc.inData Classification: DC0 (Public)This document does not constitute professional advice. The information in this document has been obtained or derived from sources believed by PricewaterhouseCoopers Private Limited (PwCPL) to be reliable but PwCPL does not represent that this information is accurate or complete. Any opinions or estimates contained in this document represent the judgment of PwCPL at this time and are subject to change without notice. Readers of this publication are advised to seek their own professional advice before taking any course of action or decision, for which they are entirely responsible, based on the contents of this publication. PwCPL neither accepts or assumes any responsibility or liability to any reader of this publication in respect of the information contained within it or for any decisions readers may take or decide not to or fail to take.

© 2020 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

GM/April 2020/M&C-5756

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Suraj Seth Executive Director, Capital Markets and Accounting Advisory ServicesPwC India M: +91 9920788673E: suraj.seth@pwc.com