The preparation of financial statements is an opportunity to communicate with stakeholders about how the business has managed through the pandemic and about its future prospects. Decisions about investment, lending and potentially remuneration are linked to the annual accounts. Understanding what factors affect the accounts is key and should be considered as early as possible in the process.
Decisions about investment, lending and potentially remuneration are linked to the annual accounts. Understanding what’s affected by the accounts and what the ‘triggers’ are is key and should ideally be done as early as possible in the process.
By adopting best practice financial management, regular discussion by the board of the viability of the organisation’s strategy and a more holistic approach, stakeholders will be presented with a set of accounts which fully reflect the impacts of COVID-19.
Businesses have been faced with difficult decisions following the impact of COVID-19 and more decisions may need to be made about the future strategic direction of the organisation. The financial statements will be a source of information to inform the board of the business’ outlook over the next 2-3 years. For example, if covenants have been breached, funding restrictions may rapidly follow. Careful planning and timely action can help avoid these factors further exacerbating the financial impact of difficult trading conditions in 2020.
By demonstrating, through the accounts, that the board has considered in depth the likely implications of COVID-19 the organisation can build confidence in capital providers and other stakeholders. If it can model how key ratios and alternative performance measures will be affected it can anticipate the impact on bank covenants, credit ratings, regulatory licenses etc and take appropriate compensating action. Robust accounts are also necessary to determine an appropriate dividend.
