Management Checklist for COVID-19

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Management Checklist for COVID-19

Navigating this Management Checklist ensures that your business overcomes adversities such as the one we’re facing now.


Every problem poses an opportunity. It can be a fresh start not just for one company but for all market participants since everyone is affected just as much as the other.


It is one of those moments when companies get tested for their resilience, perseverance, and social commitment in adjusting to this pandemic. Now is the time to review existing processes—people, operations, and the supply chain alike.


During this period, companies that are nimble and respond fast to the call to action will prevail. No one will finish this unscathed. However, our plans and actions will play a big part in where we end up, in how we rise above the challenge and move forward.


                                                                                                                                                                                


Are Employees Physically and Mentally Safe?

The people are the organization’s critical assets. If anything, now is the time to put people first. The organization cannot function without its people—due to that; specific actions must be taken to make sure that its employees are safe and out of harm’s way. Empathizing with your people now is also one of the opportune moments that makes a genuine and lasting impact on your employees.


  • Ensure employee safety


If employees’ health security is assured, companies can continue business as usual amidst the circumstances. It is a critical phase at which employees from across different levels must have open lines of communication—such that they can have a way to check in with each other from time to time.


Organizations must also keep abreast of the latest developments and ensure that pandemic-related company policies and procedures are in line with global best practices and applicable laws.


In the unfortunate event that an employee gets infected with the COVID-19 virus, the organization, through its crisis management team, must have ample information on the infected employee’s circumstances and how it can best assist the employee.


It is also good to revisit compensation arrangements to ensure that employees are still able to provide for their families during these dire times. Flexibilities in giving wages, leave benefits, or financial assistance will be paramount.



  • Strengthen capabilities to make remote working possible


As lockdowns and community quarantines have been announced and enforced in several countries, commuting to the office may simply be impossible. As such, organizations must revisit their IT capabilities and existing processes and determine which of these can be done at the comfort of the employees’ homes or require that employees must be at the office premises. This also opens up opportunities to pick up on training backlogs, process flow documentation, and other tasks that are not worked on in a typical workday to prepare the organization once operations are normalized and the pandemic has subsided.



How can the Company Promptly Respond to the Crisis and Its Implications?


It is safe to say that not all organizations’ business continuity plans had factored in a wildcard such as a pandemic that has numerous unknown and rapidly evolving variables. This is a challenge for all companies to stay one step ahead of. Now more than ever, functional roles across all strata of the organization must step out of their respective silos and work hand in hand to weather the effects the pandemic had caused to current operations. Steps must be taken to ensure immediate concerns are addressed and at the same time, assess the organization’s resilience should the repercussions extend beyond the short term.



  • Zero in on the facts


In the age of social media and with everything practically interconnected to the world wide web, there is an influx of information from different sources. An organization must cut through the noise of the big data, make sense of it, and be able to accurately establish the much-needed facts in the midst of the crisis. The facts will then support the organization’s crisis planning and response, making it imperative that the information is reliable and timely. It is an integral aspect of the organization’s crisis planning exercise, as it considers how scenarios play out and how the organization will fare in the short, medium and long run.



  • Form a cross-functional crisis management team for faster decision-making


Responding to a crisis is not a job of one department alone. To get through this ordeal, everyone has the responsibility to act on what is in the best interest of the organization. A crisis management team pools in members from different departments, thereby making it a multi-faceted team, to understand the facts, run different scenarios and consider viable alternatives, and decide on the strategic actions that the organization will take.



  • Effective and timely communication


The impact of effective communication in times like these cannot be greatly underestimated. A company’s communications strategy and actions taken can make or break the company in the eyes of its stakeholders. The crisis management team needs to identify the “face” of the organization—to its internal and external stakeholders—which is/are responsible for getting the message across and ensure its stakeholders that the company prioritizes their welfare and is doing ways to get back on track as soon as possible.



What’s the Level of Data Privacy and Security?


In order to gain a sense of normalcy and that business is as usual, working from home should be situated as if the employees are working in an office setting—that is the necessary internal controls, safeguards, and safety practices are in place. 



  • Preserving confidentiality through physical and IT security measures


Through its physical offices, companies have been able to create a sort of protective bubble around its operations. Now that COVID-19 has forced much of the workforce to work remotely, certain security measures must be beefed up to ensure data integrity and confidentiality is preserved. The use of VPNs, encrypted email, and secure desktop or laptops form part of the company’s basic security features. Companies must assess the scalability of its IT system to handle the sudden network traffic caused by the remote work setup. Establishing safeguards for IT security threats have never been more critical, as security vulnerabilities must be addressed and cybercrimes such as phishing and hacking attempts must be thoroughly prepared for. In the case of companies and individuals who work with highly sensitive and confidential data, work should be done in a private and separate working space from common areas in the home as to limit access to people privy with the sensitive or confidential information.


  • IT support for remote working


One of the key components to be able to work in a stable and secure IT environment is to have a reliable support system. There will certainly be birth pangs as companies transition from an office setup to a work from home setting at such an abrupt pace—but having a capable IT support system will generally lessen the headaches of everyone involved and contribute to easier adjustment into the work setup.



How can Current Financial Standing Support the Going Concern of the Business?


This pandemic has impacted companies globally, causing disruptions in their cash flows and even profitability. To keep the company afloat and the financial statements faithfully represented, companies have to revisit their existing financial condition and provide adequate disclosures so that stakeholders are aware of the pandemic’s current and future impact on the going concern of the business.


  • Financial impact on current operations


Global demand will be stymied as movement of goods are strained, and the current supply and demand model will scramble to a new equilibrium. It is foreseen to have effects that will last long after the lockdown/quarantine orders are lifted by world governments. Companies must assess and get an insight on the direct and indirect effects the pandemic-caused disruptions have on its current operations, such as lost revenues and additional expenditures (i.e. companies provide unanticipated additional support to its employees). It must also balance its interests with its stakeholders such as customers and vendors to adjust its working capital management in response to the effects wrought by the pandemic. A comprehensive risk assessment exercise must be performed so that the company will have a clear picture on the state of its business and be able to answer questions such as how long it can go without any sales, customers at risk especially those that it has outstanding receivables with, extent of insurance coverage on business interruptions and how it will be able to pay its employees’ payroll should the pandemic stretch out. Solvency issues and debt service obligations may need to be worked out especially for highly-leveraged companies and temporary moratorium on debt payments may have to be negotiated. Lastly, companies must re-assess how the pandemic has affected the forecasts and projections it has set out at the start of the year and determine how timing of planned expansions, product launches or financing rounds will be affected.


  • Financial reporting and audit concerns


Disclosures need to be added in the financial statements such as an assessment for the going concern of the business, including the future impact to operations and liquidity, estimates and judgments made in financial reporting, and capital resources available. For companies with operations in China and other areas severely affected by the pandemic, an assessment of the fair values is needed for related assets, including but not limited to inventory and receivables, and related liabilities, such as payables. In addition, financial instruments should also be evaluated as financial markets are also severely affected by this event. A discussion with the external auditors may also be necessary to evaluate any impact to the nature, timing and extent of ongoing audit procedures.



How are the Operations and Supply Chain Impacted? 


In an attempt to control the spread, several governments have enforced lockdowns in cities, which made movement of goods harder and more expensive. Thus, there is a need to re-evaluate existing supply chains and consider alternatives in order to continue operations. As the saying goes, you can only be as strong as your weakest link. This is the time that companies can work at doing well for their vendors, suppliers and other stakeholders who are also experiencing the effects of the economic downturn.


  • Temporary supply chain modification


Since the pandemic has affected critical manufacturing locations such as China, inventory management will be critical. In times like these, companies should be able to figure out measures in order to soften the blow. A thorough evaluation of substitutes to current raw and other materials used in production that are available to remotely affected locations and other alternatives to existing demand should be considered. Purchases from vendors—especially if the company is highly reliant on one or two major vendors—must be looked into for alternatives in case the top vendors will be unable to sustainably provide the needed volume of the company and assess how companies can manage existing vendor relationships to help them weather the crisis as well. Transportation and logistics—heavily hindered by the closing of borders due to quarantine orders— needs to be examined such that the company has alternative routes to ship goods from Point A to Point B. Businesses may consider possible modification in inventory needs, where some supplies can be omitted or replaced. A timely update to existing customers about delays, as well as inventory allocations can also be executed in order to manage the current supply of goods.


  • Long-term modelling


Once this pandemic starts to lose momentum, companies should be able to assess its supply chain arrangements, keeping in mind the possible disruptions in the supply and demand model. In addition there should be risk assessment performed on critical business functions and analysis of controls that can be placed. It is important that companies should be able to withstand an event with the same magnitude, if not stronger. This is achieved by a more comprehensive modelling of the supply chain, keeping track of new costs that were not considered before, using modern technology to detect opportunities and threats, including economic, geographic, and political, among others, that may affect supply chains.




How can Companies Help their Customers During this Time of Crisis?


The social contract between businesses and their customers should be kept intact in times like these. In some cases, their dependence to the company’s goods and services should also be considered when making decisions.


  • Operating dependencies


While the current and potential scope of this pandemic is still unknown, companies need to evaluate the dependence of some customers to its operations. B2B customers especially should be made aware of the current and impending circumstances that may affect the production that they need, as well as the other risks that might affect their own operations. This includes delays in the delivery of goods because of the travel restrictions, any modification of products that can be a significant factor in their business, to list a few. Likewise, companies must reassess their customer portfolio, especially if they have particular customer concentration, as this will greatly affect the companies’ going concerns should its top customers fold under pressure wrought by the pandemic.


  • Community engagement


There should be a proactive engagement with customers, if possible, throughout this crisis. In some cases, companies can provide grace periods in collection without charging penalties and interests. They can also provide alternatives to make collections more convenient for the customer through other secure avenues such as online and mobile transfers. Mass media, influencers and the right publicity can also be used to disseminate relevant information on the business-wide and personal impact of COVID-19 and contribute to the image building of the company.



What Changes should be Made to Existing Cost Structures and their Tax Implications?


Many countries resorted to lockdowns in order to control who gets in and out of its borders in the hopes of preventing the further spread of the disease. This enforcement greatly affects the logistics of many businesses, especially those that are dependent on the movement of goods to operate. In effect, businesses are forced to look for other ways in order to continue operations, such as restructuring business functions. This however, will constitute cost adjustments and tax implications that should be considered.


  • Tax assessment and planning


Evaluate impact to tax management, including additional filing and tax payment for relocated employees and restructured operations, addressing issues with customs in terms of movement of goods out of the country and possible change of vendors and suppliers. In addition, companies should assess the magnitude of COVID-19 on the extent of tax planning. Business should be able to pinpoint geographic areas that are affected, or if tax estimates have been affected on a company level. Since primary operations may also be relocated, the tax risk and impact should also be included in the assessment, along with risk and SOX compliance considerations to ensure full regulatory alignment.


  • Business continuity


Check the business continuity plan for any significant modifications that should be made, especially in terms of restructuring the operations. Consider how the company can keep its operations until the end of the year and weed out any impending problem that the business may face when worse comes to worst. Identify significant events including revenue losses, operating restrictions, and additional expenses that may occur, when crafting and/or modifying the plan.



How does this Change the Company’s Strategies and the Existing Business Model?


Time-tested strategies and established practices will be put to the test in the face of this crisis. At the end of it all, companies should consider what strategies worked best during the time it was weathering the outbreak—and if it can be applied as long-term strategies.


  • Frequent checks on the company’s resilience 


This pandemic has raised the importance of stress testing a company and identifying pain points that the organization has that should be remedied. The inevitable digital transition and transformation of the company’s processes and systems will serve as a company’s assessment on the next steps it should take to keep the company in tune with innovations and changes such as workforce digital upskilling, permanent adoption of remote working arrangements, to name a few. Future-proofing the company involves taking up the challenge that should the next crisis come sooner rather than later, the company will be prepared.


  • Revisiting the business model


One of the challenges posed by the ongoing crisis to companies is that it tests current business models to the limit. As mentioned earlier, no one could have foreseen that a pandemic was looming on the horizon and thus could not have been accounted for in companies’ financial models. Changing the status quo is certainly not easy and even factors such as relationships with key customers and vendors may be put in hot water. Through it all, this crisis highlights the importance of thinking of long-term considerations and accounting for the unexpected. 


This pandemic will come to pass. It is not a question of if, but of when. Until then, organizations from across the globe must brace themselves amidst the uncertainty. With adequate preparation for critical factors and the right mindset, companies and its people can come out of this stronger and ready to take on the challenges that lie ahead after all has been said and done.


WE’D LOVE TO HELP.

Now is the time to consider all business decisions and help you combat the uncertainties brought about by COVID-19. Interested in running scenarios to assess COVID-19’s impact on your financials, getting a comprehensive take on the tax implications or a thorough understanding of the accounting? We can help you. Contact us at [email protected] to get started.



Disclaimer


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. It is not intended to be relied upon as accounting, tax, corporate finance advisory, or other professional service. Please refer to your advisors for specific advice. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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As a result, this could be misleading to the users of financial statements and does not truly represent the economic nature of digital assets as these generally have actively traded markets.  While there is no official accounting model yet that considers the proper way to reflect the substance, liquidity, and value of the digital assets that are aligned with the economic reality, other models may be more appropriate, depending on the circumstances. This can vary widely, and, therefore, the accounting framework to be applied under US GAAP needs to be considered on a case-by-case basis. The type of digital asset will also be a critical factor in terms of accounting and financial reporting under existing accounting rules.  As the adoption of digital assets continues to soar, these issues will only become more prevalent and pervasive. Standard setters will continue to look into alternative and more refined approaches to accounting for digital assets to resolve practical problems and provide transparent financial reporting for users of financial statements.  Recent Developments With digital assets’ potential to transform the traditional financial system, the associated challenges are drawing considerable regulatory attention. To date, below are the relevant developments for the regulation of digital assets: • On March 9, 2020, US President Joe Biden signed an executive order on “Ensuring Responsible Development of Digital Assets,” which includes cryptocurrency and other assets such as NFTs. The executive order shows the commitment of the White House to participate in the research on cryptocurrencies and engage departments across the government to collaborate in creating a framework that will regulate digital assets. It also outlines a “whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.” Further, it serves as official recognition of the increasing impact of digital assets and the US federal government’s intention to regulate digital assets as a whole and cryptocurrencies, specifically. • On March 31, 2020, the US SEC issued a Staff Accounting Bulletin (SAB) on accounting for the obligations to safeguard crypto assets that an entity such as a crypto exchange holds for users. It clarifies how the agency expects companies to apply existing accounting standards to digital assets.  • On May 11, 2022, the FASB added a project to its technical plan to improve the accounting for and disclosure of certain digital assets. Previously, the FASB has received three agenda requests on digital assets since October 2020, all of which encourage the Board to address the financial reporting for digital assets. • And more recently, the US Treasury Department issued a “Greenbook” that includes budget proposals to modernize various tax rules, including those for digital assets. Rules will change for treating securities loans as tax-free to have other asset classes and address income inclusion, provide for information reporting by certain financial institutions and digital asset brokers for purposes of exchange of information, and require reporting by certain taxpayers of foreign digital asset accounts. In addition, the plan would amend the mark-to-market rules for dealers and traders to include digital assets. What’s Ahead? As the digital asset landscape continues to evolve across various types of market participants, products, and technologies, companies and other stakeholders of all kinds must be able to properly reflect and disclose these digital assets in their financials and assess the overall impact of the risks involved in owning these types of assets when making decisions. However, since digital assets are new and unique from other investments, the existing accounting models does not yet fully reflect these assets’ true nature and value in accounting and financial reporting. Also,  companies must be aware that regulators are rapidly evolving their guidance on reporting, so the rules of engagement today may be different in the future. Accordingly, accounting, assurance, and tax services for companies with digital assets have become more sophisticated and require professional advisors to understand the nature of those complexities. This is similar to the specialized approach required for nonprofit financial reporting, where unique compliance requirements demand expert knowledge and precision. We’d love to help. To ensure that all factors are considered in the pursuit of reliable financial reporting, effective and efficient operations, and compliance with law and regulations, our services can be scaled to accommodate your business needs. Our Technical accounting Group provides a thorough analysis on assessing the impact of complex and unusual accounting transactions.   E-mail us at [email protected] for a full consultancy assessment. Disclaimer: The information contained herein is general and is not intended to address the circumstances of any particular individual or entity. It is not intended to be relied upon as accounting, tax, or other professional services. Please refer to your advisors for specific advice. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. *Disclaimer: Services being offered do not require a state license. About the Author Reinald John Maliberan is a supervisor of the Technical Accounting Group of Scrubbed. He assists companies in preparing technical memoranda and performs an extensive review of US GAAP financial statements (i.e., 10-Q and 10-K reports), note disclosures, and account reconciliations. Before joining Scrubbed, he has almost five years of professional experience with Ernst and Young (EY) Philippines handling financial statement audits for public and private companies.

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