The past nine months have been a call to greatness and a challenge. Supply chain disruptions, lifelines in the CARES Act, concerns about the accounting for PPP loans, and shutdowns left many businesses looking at a vastly different year than in the past.
But now that we are entering year-end season for many leaders, it’s time to look at how you’re going to put a bow on the year. As discussed in a recent CFO article by Eric Knachel, “the 2020 year-end is about capturing and communicating all the complexities and temporary fixes without losing sight of a new path forward.”
Whether it’s forecasting or going concern analyses, internal controls stipulations or stakeholder communications, corporate finance staff needs to tread carefully in the coming year-end to present a coherent view of the future. How can you address these issues? Here are a few things to focus on:
Forecasting and Related Impairment Analyses
Forecasting has always presented a challenge—but 2020 turned up the heat. Unprecedented times mean unreliable numbers, and many companies may need to reevaluate their forecasting once again.
In this, finance leaders need to pay particular attention in their impairment analyses to such issues as the recoverability of deferred tax assets, goodwill, other intangible assets, right-of-use (lease) assets, and revenue-related contract assets.
Knachel notes that,
“Forecasts need to weigh contingencies while also developing and evolving business strategies — again, regardless of whether COVID-19 has meant downsizing or growth. That means fresh thinking about supply chain disruptions, customer behavior patterns, and workforce adjustments, among many other issues.”
Adding New Focus to the Going Concern Analysis
Forecasting is a challenge, and the short-term forecasts for going concern analysis are going to present a significant challenge in 2021. With new variables to consider— assessing liquidity, determining working capital shortfalls, projecting sudden diminished or increased demand, weighing the impact of government assistance—corporate finance leadership has found that the short-term forecast used for a going concern analysis has become even more complicated than the long-term forecast.
Handling the Constantly Changing Internal Controls
From fraud to cybersecurity, the world of internal controls continues to change. Determining what’s effective—especially in a remote workforce—requires a different look. Knachel recommends you ask the following questions:
- What changes have occurred in transaction flows and processes?
- Which job responsibilities have changed (e.g., as a result of the company’s possible restructuring or downsizing)?
- What are CFOs doing to protect against cyberattacks?
- How are CFOs protecting against fraud?
We’ve discussed a variety of these topics throughout the year, asking whether transaction processing has finally realized the promise of automation, discussing the cybersecurity challenges faced in finance, and demonstrating the challenges companies face in stopping fraud.
Additionally, we looked at the changing role of the controller in our Controllers Council study on the new approaches to controllership.
Going beyond GAAP Compliance in Shareholder Communications
Inspiring confidence in a tumultuous landscape could be the company’s secret sauce with higher taxes and a deeper recession on the horizon. This is why shareholder communications need to go beyond compliance with U.S. generally accepted accounting principles to provide a new level of transparency.
Knachel adds that CFOs should be open to giving background on how estimates were arrived at and what key assumptions informed them—and how estimates may change after the financial statements are issued in light of currently available information.
When looking beyond GAAP, however, it’s important to communicate how you came to these conclusions, discussing things like COVID-19 related adjustments. According to Knachel,
“Stakeholder communications should include an explanation of how management arrives at its estimates and strategies; how it thinks about a variety of variables from liquidity to capital resources and from business continuity to the supply chain. When faced with uncertainty, there may be a tendency to shy away from providing details and estimates for fear of being wrong. But, in the current times, building stakeholder confidence and trust are of utmost importance.”
Building a Consistent Future: Discuss Your Initiatives with Controllers Council Members
We launched the Controllers Council to help our members get the most out of their role. With year-end on the horizon, it’s critical to have the right place to bounce ideas and get information. That’s why we’re here— to help you understand, connect, and collaborate with others like you. Controllers Council is a national community and platform of Controllers, Accounting and Finance professionals focused on accounting best practices, information and resources, recognition and networking.
Looking to learn more about joining our community? Click here.
Additional Resources
Has the Coronavirus Given Corporate Finance a Taste for Technology?
