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Recently, weve seen some signs of life returning to normal but its going to be a slow burn. There are many examples of concessions being made to business through this difficult time - compliance obligations arent among them.

From a financial reporting perspective, this 30 June 2020 year end will be the highest risk balance date in decades, with far more judgement required. It will involve more time of senior management, Directors and auditors. It will also require a mindset shift as our collective responsibility for quality financial information in the markets has not changed. Risks are evolving rapidly, not just the type and number of risks, but new risks are emerging on a weekly basis. The risk registers of many organisations are moving quickly and need constant revision. The adequacy of how financial reports come together and the surrounding control environment will be critical, as will disclosure to allow the reader of the financial statements to see what assumptions have been made when striking the accounts.

ASICs perspectives to date

From our discussions with ASIC and reviewing their materials, they are committed to ensuring investors are as well informed as possible through the reporting season. But they also dont want to be seen as a blocker and want to provide regulatory and administrative relief to companies, ensuring laws are easy to work with in the new environment.

Theres no sense that there will be any relief from applying accounting or auditing standards but there is some administrative relief. ASIC have announced that they will extend the deadline for both listed and unlisted entities to lodge financial reports (both full year and half year) under Chapters 2M and 7 of the Corporations Act by one month. The extended deadlines apply to entities with reporting dates up to and including 7 July 2020. ASX listed entities are still required to lodge their Appendix 4E under ASX Listing Rules by the usual due date. If your company is a listed entity, wherever possible you should continue with the normal practice of lodging the 4E with audited accounts to:

• provide the market with the best information possible on a timely basis; and

• avoid the pitfalls that can arise with unaudited 4Es, including the need for additional disclosures to the market in the 4E itself and in audit opinions.

Further information can be found in the ASIC Announcement which also includes an extension of the no action position on holding of AGMs.

The overall tone from ASIC is to get information into the market as quickly as possible - information that is good, albeit maybe not perfect.

Accounting and disclosure

In the preparation of financial reports, theres a need for greater detail. Examples include assessing the carrying value of certain assets, deferred tax losses, other capitalised costs, going concern assessments and more sophisticated cash flow forecasting. All of these judgments are based on forecasts. Those forecasts are going to be more uncertain and harder to strike than they have been in the past.

There is significant judgement to be exercised in asset valuations, particularly in volatile times. Many assets are valued by means other than discounted cash flows, particularly those in financial investments with the Level One and Level Two rules.

Outside of financial services, AASB 9 and financial assets is a bit of a sleeper. AASB 9 is the broader standard around financial instruments, but it also includes the carrying value of financial assets including debtors. At its heart is a standard which used to ask you to look at your historical experience before you recognised a provision for doubtful debts, but now asks you to look at your expected credit losses and look forward. The implementation of this standard couldn't have come at a more difficult time, as the credit risk in most accounts receivable portfolios is increasing as customers find it harder to pay and it has to be calculated in a different way to before.

There are also some practical accounting changes to come from COVID-19. Companies undergoing restructuring will need to consider a whole other set of costs and accounting rules. Similarly, companies will need to account for new employee benefits programs, such as JobKeeper. These changes are likely to impact on other agreements such as borrowings, underwriting agreements, covenants and capital raisings.

In terms of asset valuations, you need to consider whether the information you've had in the past is going to be available when you need it and if not when it will be. In terms of debt covenants, its important to pay attention to the terms and conditions in loan and underwriting agreements, which in good times dont get much attention. Taking the time to think about some of those judgments now, will serve you well and enhance the quality of the financial reports at year end.

Control environment

From our experience, in times of unprecedented challenge such as these, focusing on risks that arent on the ledger is critical. From a fraud perspective, any forensic investigator would tell us that there is now a higher probability and a higher motivation for fraud than there would be otherwise. This, combined with the rapid move to remote working, means there is also increased cyber security risk. A stronger view of the control environment in those areas may be worth considering at this time.

Its important to keep the controls in as the costs come out. Companies are making very quick decisions, particularly around emergency restructuring of their business, including reduced headcount, changes in systems and disposal of businesses - all with people working remotely from each other and under greater than usual pressure. In the rush to execute those decisions, companies must ensure that the control environment that helps manage risk isn't negatively impacted. This is particularly the case in businesses with large redundancy programs.

Quality, sophistication, timing and assurance over cash flow forecasting is also critical, not just from a going concern and Directors responsibilities perspective, but because of the amount of accounting judgments that are based on forecasts. Questions need to be asked about the level of sophistication and review, who is responsible and whether it has been tested externally.

Audit

This year more than ever, early, transparent and open communication between management, the Board and auditors will be critical. Below are a few issues for CFOs to keep in mind as we move towards 30 June.

• In the majority of cases, financial results are heading downwards. When that happens, the materiality level for your auditors will become lower and you might see more audit work than before in areas of the business that were previously not material.

• Auditors are going to have to reassess audit risk. If they've already presented an audit plan, they should be having a conversation with you about the reassessment of audit risk as a result of the COVID-19 environment.

• There will be conversations that we haven't had before and more disclosure in a company's accounts, or what's called material uncertainty. This is where a company discloses that, while it's formed a view that it can continue as a going concern, there are several significant assumptions underlying that view. If those assumptions dont play out, then the outcome could be different.

• Finally, with finance teams becoming leaner over the years, it might be worth calling in some additional expertise in areas such as valuations, impairments and remuneration. There is a risk of thinking things will be the same as last time, just a little bit harder. But if everything's a little bit harder, it might pay to call on that expertise now rather than leaving it to the July period.

The overriding message is around consistent communication; working together with auditors and focusing just as much on the practical or non-financial risks; and having as reliable a set of quality financial information as you can to communicate to the market.

Please answer following questions based on managements viewpoint:

1. With the COVID-19 pandemic, going concern assumption will surely be more of a focus than ever before in business. Discuss.

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