At the best of times, fiscal year ends are challenging. Organizations with upcoming or recent fiscal year ends will undoubtedly find them particularly challenging. Organizations with robust policies and procedures will likely fare better than those without. Consequently, it will be helpful to start your year end planning as early as you can. If possible, use downtime to create or update plans, policies and procedures. As you will see below, a wide range of policies and procedures supplement the business continuity, human resources, and health and safety considerations that are more directly engaged during a pandemic.
The following are just a few of the considerations which may take on increased significance for recent or upcoming year ends, particularly for organizations which have external audits and reporting:
- Reporting and Filing Deadlines: There are year end filing, reporting and payment deadlines, although some regulators and tax authorities may have provided extensions. This information will be on their websites or otherwise widely communicated. For instance, the Ontario Securities Commission has provided blanket relief for market participants as a result of COVID-19. Similarly, the Canada Revenue Agency has announced COVID-19 relief measures. Many other regulators or third parties have announced relief measures.
Although governments may extend deadlines set by provincial and federal laws, deadlines in your contracts may not be automatically covered or extended. You may have to negotiate those timelines separately.
If you need extensions from regulators or other stakeholders to help you navigate COVID-19, ask. If you arrange extensions on an ad hoc or individualised basis, on terms that are not generally available to others or publicized, think about getting the extension in writing.
- Disclosures: You may need additional disclosures about the impact of COVID-19 on the organization and its financial results. For instance, you may need disclosures about material risks, contingencies, and subsequent events in audited financial statements and regulatory filings. These disclosures may relate to closures of facilities, disruptions to supply chains, reductions in expected investment income and many other elements of the financial statements.
- Impairments: Investments, inventories and other asset values may be impaired because of volatilities in stock and commodities markets and other effects of COVID-19. There may be implications for assets whether they are recorded at historical cost or at fair value.
- Estimates: Financial statements include all sorts of estimates, including those related to bad debts, warranties, and returns. Organizations may need to reassess the assumptions and the bases used to prepare estimates, to ensure that they are reasonable. Consumer hoarding, defaults, returns, and cancellations may be volatile and therefore less predictable than in the past. With respect to deposits on the sale or purchase of goods or services, organizations may be on either end of this issue, either having to provide refunds or forfeit deposits.
- Going concern assessments: Organizations which were operating at the margins, not-for-profits (depending on the source of their funding) and those in travel, hospitality, and other vulnerable industries, must assess their ability to continue as going concerns (that is, their ability to continue as a viable operation in the foreseeable future). Make this assessment using a one-year horizon, at minimum, from the date the financial statements are issued, or from the present, for interim evaluations.
- Practical considerations: COVID-19 poses many other practical challenges. Cut-off (that is, making sure that transactions and events are recorded in the correct accounting period), which is challenging in normal times may become more difficult, as routine procedures and documentation are sacrificed to cope with the day-to-day. If offices are closed and documents are available only in hard copies, how will year end adjustments and audit schedules be prepared? If employees are ill, or under quarantine, who will do the inventory counts? Will your auditors be able to attend your site to perform the audit in these circumstances?
Year end policies, procedures, and planning will help
Organizations with well-organized year-end policies and procedures will be better equipped to handle the above challenges. For instance, the following strategies from GV 1.09 – Relationship with External Auditors in Finance and Accounting PolicyPro, will have positive impacts on year-end readiness:
- Plan year-end activities as far in advance of the year end as possible and practical. Create timetables and assign roles and responsibilities for tasks. Communicate timelines and other important information to the rest of the organization.
- Take advantage of any downtime to complete tasks and prepare analyses like lease commitment schedules, that can be prepared or completed in advance of year end.
- Train accounting teams in year-end procedures and ensure that you have backup coverage for all roles in the event of illness, quarantines or other absences.
- Keep the lines of communication with external auditors and accountants open throughout the year. Discuss strategies to create audit efficiencies, for instance, interim testing with roll-forwards.
The checklists and other month end closing tools in FN 7.02 – Management and Financial Reporting and FN 7.05 – General Accounting Procedures, in Finance and Accounting PolicyPro are also helpful.
It is not too late
You may still have some time and flexibility to either implement the above, or other course correcting strategies, including the following:
- Contact your auditors and accountants without delay, to resolve logistical challenges and to discuss concerns which you may have about potential subsequent events, impairments, going concern assessments, estimates and other issues.
- Get creative and embrace technology. If employees are quarantined, or to facilitate social distancing, convene virtual meetings for year end planning, training or updates, using a simple conference call, or GoToMeeting, Skype, FaceTime, Zoom or similar technologies.
- Adjust. If, for example, you cannot perform a full inventory count for all locations at the year end, consider deferring the inventory count to a later date when (hopefully) the staffing challenges and other restrictions abate. This would be coupled with a roll-back to the year end date. Conversely, if the organization performs cycle counts (that is, counts of portions of its total inventories quarterly or on some other basis) and has a reliable perpetual inventory system, it may be possible to roll-forward the most recent cycle counts to the year end.
- Get creative, embrace technology and adjust. It may be possible to use video technology to conduct some physical counts or asset inspections, with one person in the field manning the equipment while the auditor or accountant watches and provides real time directions about sample selection. It may also be possible to deploy drones to obtain live feeds of inventories or assets that require identification or inspection. Auditors, accountants and their clients should discuss these alternatives to addressing quarantines, travel bans and staffing challenges.
Other policies and procedures
As explained above, during a pandemic you need a robust suite of policies and procedures beyond those that the crisis will engage directly. Visit First Reference’s COVID-19 page at www.firstreference.com/covid-19/ for links to some of these resources.
Additionally, First Reference’s Internal Control Library includes guides and other publications to help you navigate COVID-19 and supplement your business continuity activities. For example, cashflow and investment management are critical issues which may determine an organization’s ability to survive. Download a helpful cashflow management checklist and review the following policies in Finance and Accounting PolicyPro: FN 5.09 – Cash Management; FN 5.05 – Investing Excess Funds; and FN 5.12 – Medium– and Long–Term Investments.
Perhaps you now realise that electronic funds transfer (EFT) is essential if quarantines or illness prevent access to physical cheques or cheques signers. If so, FN 5.11 – Electronic Funds Transfer will assist.
The above are in addition to polices and procedures that are directly engaged by COVID-19, including Chapter 5 – Risk Management, which includes GV 5.03 – Business Recovery Planning.
Not-for-profits should review the following policies in Not-for-Profit PolicyPro: NP 2.05 – Risk Management, NP 2.06 – Strategic and Business Planning; NP 4.05 – Cash Management; NP 4.06 – Budgets, Forecasts and Reporting; and NP 4.07 – Investment Management.
Additionally, many of the policies in Information Technology PolicyPro will be particularly useful at this time, including: Chapter 11 – Backup and Disaster Planning, IT 10.03 and 13.09 – Remote Access and Chapter 14 – Mobile Device Management (BYOD or Bring Your Own Devices). With the increased risk of cyber incidents since the onset of COVID-19, the coverage on ransomware and other malware in IT 8.05 – Controls for Viruses, Worms and Malware; IT 8.04 – Confidentiality and Privacy; IT 8.06 – Managing a Security Breach and IT 8.07 – Cybersecurity, will be helpful.
Policies and procedures are essential, but the work required to create and maintain them can seem daunting. Finance and Accounting PolicyPro, Not-for-Profit PolicyPro, and Information Technology PolicyPro, co-marketed by First Reference and Chartered Professional Accountants Canada (CPA Canada) contain sample policies, procedures, checklists and other tools, plus authoritative commentary to save you time and effort in establishing and updating your internal controls and policies. Not a subscriber? Request free 30–day trials of Finance and Accounting PolicyPro here, Not-for-Profit PolicyPro here, and Information Technology PolicyPro here