COVID 19 has been a testing time from finance perspective. Most of the businesses are suffering due to the pandemic. The expectation from the finance professional is increasing with the changing times. Finance experts are expected to play the role of surgeon in the business sector. They need to diagnose and provide the remedy quickly. Following articles are relevant for all concerned with business activities.
1. Optimization of Working Capital
As Kirk Blair, Partner, Deloitte Financial Advisory Services LLP said in The Wall Street Journal, optimizing working capital is imperative to strengthen the cash positions. It is particularly relevant in today’s environment (i.e. current corona virus crisis), since an additional focus is needed on accounts payables, receivables and the liquidity forecast to ensure the effective management. In such a scenario, it is advisable to proactively communicate with the largest customers to ensure that invoices will be paid on time instead of waiting until the payment deadline is passed. On the other hand, a proper agreement can be made with the suppliers to allow you to make payment with slight delays. This approach can improve the working capital position in the short run without causing serious damage to the relationships.
In the present uncertain economic environment, it is essential to optimize the working capital as it can safeguard management from certain risks. To maintain an adequate level of working capital requires the attention of top management. It is equally important as it is for sales and revenue.
To achieve an optimum level of working capital, it is vital to establish processes that promote transparency, accountability, and thereby driving actions that produce results.
2. Cost Management
Andy Marks, Deloitte Services LP, senior writer, sheds light on ways to improve Cost Management Outcomes by CFOs (Chief Financial Officers) by writing an article in The Wall Street Journal
Senior financial officers can improve the cost management in many ways. One of the biggest challenges to cost management is the lack of an effective ERP system. Vast majority of ERPs are implemented 5+ years ago. CFOs must familiarize themselves to new technologies and take lead while implementing ERPs and cloud-based solutions. The project must get resourced with the best finance talent to ensure the desired results. Today, many cost management drivers use cognitive and robotics. But these are not integrated with ERP systems as most ERPs integrated five years ago are outdated. CFOs should decide to create toolsets which can act as an alternate to judgment-based processes, predictive decision making and many more. This is possible by combining RPAs (Robotics Process Automation) with cognitive and Artificial Intelligence capabilities.
Taking decision of updating ERP system is of paramount importance and CFOs as the leading decision makers can break the barrier to implement effective cost management drivers.
3. Risk Management in COVID times
As stated on risk.net by Jose Ribas, Global Head of Risk and Pricing Solutions at Bloomberg, risk management is attracting lot of attention during Board meetings, with CROs (chief Risk Officers) and risk managers.
These days CTOs (Chief Technology Officers) are playing a prominent role in risk management, reporting and communication. CROs and CTOs are the key officials who can assess whether they are investing in the right technology and working with the right partners.
Upon asking how firms manage data for regulatory compliance and reporting in COVID 19 times, Jose Ribas replied that data is the key for effective decision-making. There is increased demand for quality data during pandemic. Also, it needs to be transparent and accurate to assist management taking crucial decisions.
4. Time to manage cyber threats during COVID 19
According to FEI Daily in Financial Executives on 22nd June 2020, the COVID 19 pandemic has changed the way of working abruptly.
The physical workplaces are being shifted to remote workforce. As a result, cyber threats are increasing due to the inability of corporate network operators to manage home devices. According to Sonic Wall, a cyber security firm, an executable file named “Corona virus_Safety_Measures.exe” was delivered to the victim’s machine as an email attachment which was later on found to be a malicious file. Also, there are instances, where cyber attackers created websites spreading false information about the corona virus by falsely claiming “ways to get rid of it” and attracted new victims via downloads. It is stated that Boards are facing challenges on how to govern cyber security strategy due to the little understanding of the topic.
Board members are deeply getting involved in finding the resolution of cyber-crimes. Kaley Childs Karaffa, Director of Board Engagement at Nasdaq mentioned in the article that one company she is working with has started conducting weekly virtual meetings during the pandemic at the board’s request, continuing to update policies that ensure the workforce is protected and the supply chain is supported. Apart from the risks, Karaffa also requested to identify the opportunities in the risk environment.
5. Pound is becoming an emerging market currency
As wrote in Financial Times by Bank of America Analyst, Kamal Sharma, Pound is now becoming an emerging – market currency due to Brexit and liquidity conditions. The bank analyst observed that the difference between rates at which the investors at which the investors are willing to buy and sell sterling remains more as compared to the other currencies. Historically, sterling has been part of G5 group (i.e. Dollar, Euro, Japanese Yen and Swiss Franc). It was one of the heavily traded and considered as the safest currencies in the world.
According to Mr. Sharma, there are uncertainties in the relationships of UK and EU since the Brexit vote which has made investors less interested to take views on the currency and as a result there is a drop in liquidity. Therefore, pound cannot be evaluated on the previous framework.
6. Audit risks in pandemic scenario
As Joseph Radigan, Financial writer, said in Journal of Accountancy, auditors are also facing the negative consequences in their operations due to sudden eruption of COVID 19. The exact repercussions will be clear once the audit teams start planning strategies and getting involved in the fieldwork. In the same article, Lynford Graham, CPA, Ph.D., a consultant in Short Hills, N.J. mentioned that the experience gained by auditors while working with the clients will be less relevant. Presently, many company audits (Public as well as Private) employ a control-based study, which according to the author relies heavily on a client’s ability to keep adequate financial reporting controls round the year. This is advantageous to the auditor as it saves significant time of auditor at year end. They don’t need to be heavily involved in the substantive testing at year end.
But during current circumstances, audit strategies need to be changed, reason being controls may not be operational between Feb/March’ 20 till COVID 19 is controlled as key people were not present or the business processes were changed. In such circumstances, audit engagement team will also need to change the sampling approach since the client’s controls will be less reliable.