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The impact of the current uncertainty on business is complex. Adequately reflecting the impact on periodic financial statements is a key element of communications to stakeholders. For listed companies, for which capital market rules have not been relaxed, it is important to maintain compliance with regulations and consider the need for additional communication.
You might find yourself in a similar situation.
To help you, we have created an overview of scenarios, suggested activities and guiding questions for responding to the crisis and recovering the business. As the progress of COVID-19 is hard to predict you might find your business switching between these two phases.
Companies may need to consider implications relating to financing and make decisions about planned market transactions. While being confronted with additional complexity and requirements, they may also face resource constraints due to illness, regulations preventing employees from commuting to work and an insufficient infrastructure to support a remote workforce. We have summarised below some of the potential main challenges and actions to overcome them.
There are a number of areas that may be affected. Here are some questions for you to consider:
Observations suggest the following areas could be affected by COVID-19.
Complex financial reporting topics | Debt & liquidity considerations | Capital market transactions | Compliance with capital market rules | Resource constraints | |
Description | The impact on financial reporting due to customer, supplier or workforce disruptions and/or idle capacity will be wide-reaching. | Potential discussion with lenders about covenants and liquidity. Change in interest rate may result in re-financing through debt-buy-back, derivatives or rights offering. |
Current market conditions do not provide the foundation for a successful IPO market, though there are examples of successful listings during economic downturns. |
For public companies, there is the need to ensure compliance with rules and regulations, as well as a need for additional communications. | Workforce disruption may be exacerbated by the additional analysis required of complex accounting issues caused by economic uncertainty, and lack of relaxation of regulatory deadlines. |
Action | Timely and appropriate impact assessment and disclosure in the financial statements required to appropriately communicate the impact to stakeholders. |
An assessment of the accounting impact, including on hedge accounting and related implications for KPIs will be required. |
At such times, it is important to continue preparing to ensure readiness when the window opens. Scenario planning and adjustment to IPO roadmap required. |
Assessing the need for communications such as profit warnings or ad hoc publicity, or use of alternative (non-GAAP) performance measures required. |
Adequate prioritising, project management and scenario planning so as to identify resource constraints, is essential to still deliver in a timely manner. |
COVID-19 will affect organisations to different degrees, requiring several actions.
Business issue | Significant supplier or customer disruptions, including decreased demand and business interruption. Idle capacity or vacant facilities. |
Liquidity constraints, changes in interest rates leading to re-financing, repurchase of debt, and/or difficulties in meeting covenants. | Significant business disruption and economic uncertainty will also have an indirect impact on many other areas of financial reporting. |
Financial reporting areas affected |
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Considerations/ actions |
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Assessing the short and potential long-term impact on the business will be key. This will need to be reflected as part of financial reporting, where transparency becomes crucial in communicating with stakeholders. As such, impacts may include:
Compliance with reporting requirements
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Workforce and systems | Communication with stakeholders | Financial risk exposure | M&A strategy |
Assess which areas of the business are having either a temporary or long-term effect, and adjust budgeting/scenario planning. Ensure adequate reflection of such impact as part of regular and future financial and regulatory reporting. Prepare for increased regulatory scrutiny. |
Adapting systems to facilitate remote working increases an entity’s ability to maintain social distancing rules, cope with increased demand, timely processing and minimise loss of productivity and further disruption from COVID-19, but also to seize new opportunities through adoption of new or evolving business models. | Timely communication with stakeholders, by way of ad-hoc communications, disclosures in the MD&A or as part of financial reporting to increase transparency related to the impact, and relevant changes to the business and operating model (where relevant). | Manage changes to liquidity and recalibrate whilst maintaining capital requirements. Consider impact of higher financial volatility, manage deposit fluctuations and client re-financing deals, and update credit impairment models. Evaluate exposure to increased claims (insurance). | Scenario planning and assessing the short and long-term effects may result in a revision of the organisation’s planned capital action. If preparing for a market transaction, it is important to maintain capital market/offering readiness to take advantage of favourable windows. |
Short-term | Medium-term | Long-term | |
CEO/Board of Directors |
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CFO |
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Required on a continuous basis:
Assessing the short and potential long-term impact on the business will be key. This will need to be reflected as part of financial reporting, where transparency becomes crucial in communicating with stakeholders. As such, impacts may include:
Compliance with reporting requirements |
Workforce and systems | Communication with stakeholders | Financing/ Government stimulus | M&A strategy |
Assess which areas of the business are having either a temporary or longer term effect, and adjust budgeting/scenario planning. Ensure adequate reflection of such impact as part of regular financial reporting. |
Adapting processes and systems to facilitate remote working and increase an entity’s ability to maintain social distancing rules, minimise loss of productivity and further disruption from COVID-19, but also to seize new opportunities through adoption of new or evolving business models. | Timely communication with stakeholders, by way of ad-hoc communications, disclosures in the MD&A or as part of financial reporting to increase transparency related to the impact, and relevant changes to business and operating model (where relevant). | Assessing the revised needs of the business will allow a revised assessment of the funding needs of the company, which may result in some companies restructuring their existing financing and/or requesting government support. | Scenario planning and assessing the short and longer term effects may result in a revision of the company’s M&A strategy as opportunities arise. If needing or preparing for a capital market transaction, it is important to maintain IPO readiness to take advantage of upcoming favourable windows. |
Short | Medium | Long term | |
CEO/Board of Directors |
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CFO |
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Required on a a continuous basis:
Partner, Investor Reporting and ESG Leader, PwC Switzerland
Tel: +41 58 792 25 37
Michael Eiber
Partner, Capital Markets & Accounting Advisory Services, PwC Switzerland
Tel: +41 58 792 21 17
Director, Capital Markets & Accounting Advisory Services, PwC Switzerland
Tel: +41 58 792 63 79