The ongoing coronavirus crisis is impacting all areas of life and this includes financial services. There are a lot of issues that businesses and other organisations will need to consider over the coming weeks and months. Here we will look at some of the most important areas and how they are being affected by COVID-19.

Audit and financial reporting

The pandemic has raised a number of issues and questions in the area of financial reporting and audits. These include the way that audits that are already in progress will be finalised with practical considerations arising around travel and access to relevant records and information.

There will also be decisions to be taken on issues such as going concern status and the classification of forbearance activities and deferment.

The situation is very fluid at the moment and guidance is constantly being issued and revised. The Audit and Assurance Faculty, for example, has issued guidance for auditors regarding going concern status during COVID-19.

Even within the guidance itself the body concedes that: “Management and auditors may conclude that it is not possible to provide a clear answer to some of the questions posed in this guide. Given the level of economic uncertainty that exists at present, this is to be expected, and addressing these questions should help management and auditors to identify the specific uncertainties that are relevant to the entity.”

It adds: “Given the increased likelihood of material uncertainties and the possibility that some accounts will be prepared on a basis other than going concern, auditors are likely to view going concern as a heightened and/or significant risk area.”

Auditors should take into account the impact of coronavirus when assessing whether a business is considered a going concern, including how the business model has been affected, whether links in the supply chain are at risk and how the business is dealing with staff absences or shortages.

There is also a question mark over activities that may be considered a significant increase in credit risk under IFRS 9. This could potentially result in more assets being moved to stage 2 provisioning.

Business continuity issues

The current situation and its impact on businesses might have a large element of unpredictability but business continuity plans have never been more important. Companies should ensure any such plans are up to date. Staff should also be briefed on what to expect, even if it is impossible to accurately predict every eventuality.

A business continuity plan should cover a number of areas, including but not limited to:

  • The impact on employee welfare, including mental health issues caused or exacerbated by coronavirus, the effect of school closures on staff with young children and the impact of the ongoing situation on staff with other caring responsibilities.
  • The impact of changing working conditions such as remote working and working in partial or incomplete teams. Are processes resilient enough to withstand these changes while still complying to relevant regulations such as privacy and data protection?
  • How you communicate with customers and partners.
  • The impact of the COVID-19 pandemic on supply chains, contracts and any outsourced arrangements.

Risk management

The coronavirus and its knock-on effects are likely to have a wide-ranging impact on operational and market risk and associated issues including insurance, credit and liquidity.

Businesses and other institutions should take this into account and may need to change their approaches to issues including:

  • Keeping a continuity in essential record-keeping in the face of displaced or absent staff and major disruption to supply chains and systems.
  • Potentially stresses to income and liquidity.
  • Changes to balance sheets and valuations in regards to things such as reduced stock market valuations and a reduction in assets.

Financial support for businesses

The Government has announced a wide-ranging package of schemes and measures intended to help businesses in terms of cash-flow and other issues.

The Bank of England made two cuts to the base interest rate in March, bringing it down to a record low of just 0.1%. Schemes were also introduced to encourage banks and other finance providers to lend to businesses in this period, including providing Government-backed guarantees for lenders.

Some of the economic support made available to businesses during COVID-19 include:

  • The Job Retention Scheme

This allows employers to ‘furlough’ employees that they might otherwise have had to lay off. In essence, the scheme provides for employers to claim back up to 80% of an employee’s wage (up to a maximum of £2,500 per month), as well as the associated Employer National Insurance and pension contributions. Furloughed employees are not allowed to work for the employer or associated businesses while they are on furlough.

  • Coronavirus Business Interruption Loan Scheme (CBILS)

This is designed to encourage banks and other lenders to provide finances to businesses affected by coronavirus by providing the lender with a Government-backed guarantee on the debt repayments. The facility is for SMEs looking to borrow up to £5 million. As well as the guarantee, the Government will pay the first 12 months interest and fees, meaning there should be no up-front costs and the initial repayment rates will be lower.

While the main scheme is designed for UK-based SMEs with a turnover of less than £45 million, larger businesses may be able to qualify for the Coronavirus Large Business Interruption Loan Scheme.

  • Bounce Back Loan Scheme

Smaller businesses can also apply for a Bounce Back Loan of between £2,000 and £50,000. This will also be guaranteed by the Government, who will cover the first 12 months interest and fees. You cannot apply for this scheme if you are already borrowing under CBILS.

  • The COVID-19 Corporate Financing Facility

Under this scheme the Bank of England will buy short-term debt from large companies who are struggling with a short-term squeeze on cash-flow or funding.

Some other measures include Business Rates Relief for some businesses and the option to defer VAT payments and Self-Assessment payments.

The Institute of Chartered Accountants in England and Wales (ICAEW) has an online Coronavirus Hub with more information and resources for businesses and consumers.

Tom Cowley
Tom Cowley

Tom brings a wealth of experience to The Financial Management Centre having started his working career as an accounts trainee working his way up to site number one over 20 years ago. He has extensive experience of working in the UK and overseas for a number of prominent groups including Unilever, Shell, Costain, Smit International, Arcelor Mittal and Columbus McKinnon.