The COVID-19 environment has thrown up a lot of balls in the air for CAOs to juggle. At many companies, they are helping to maintain a sound financial footing by working through falling revenue, liquidity issues, and various cost-saving scenarios. As a key member of the crisis management team, CAOs today are performing far more than their “day job” duties of closing the books and managing internal controls over financial reporting (ICFR) in a virtual setting.
To learn more about how CAOs are raising their game to respond to COVID-19, KPMG hosted virtual regional forums with CAOs across the U.S. from April to June. Based on conversations with more than 100 companies, we found that CAOs are focused broadly on three issues:
- Building a robust cash-flow forecast
- Optimizing internal controls over financial reporting
- Applying greater rigor to reporting
Building a robust cash-flow forecast
Even though companies may have entered this recession with healthy cash flow and many have benefited from government stimulus, maintaining liquidity remains of utmost importance to CAOs. Corporate leadership is demanding more frequent and detailed forecasts so they can make strategic decisions with confidence. In response, CAOs are now building a weekly or even daily forecast model of inflows and outflows.
Creating an effective forecast model requires sufficient detail to understand drivers of liquidity and enable scenario planning. That entails accessing data from multiple systems, business units, and geographies. So CAOs are using the internal relationships they have built with colleagues outside the accounting department to access critical information on how and when cash moves through the business.
Meanwhile, working virtually, layoffs, and furloughs have forced CAOs to modify processes and controls. To the extent that certain individuals are not able to complete jobs as before, these have to be redesigned. CAOs can assess which controls can be automated to drive cost savings and reduce risk in the financial reporting process. In case the workforce faces a reduction, the finance and accounting staff may need to be augmented with financial-close automation tools and cloud-based solutions.
CAOs are also recognizing that entities and financial statement items that were previously outside the ICFR perspective may come into scope due to changes in materiality from worsening business conditions. This means that they need to be prepared to communicate reporting and documentation expectations to affected business units. In addition, the CAO should make sure the risk assessment process is updated as needed to give management an accurate picture of events that could raise serious questions about the company’s internal controls related to going concern.
Applying greater rigor to reporting
This year, CAOs need to prepare for two particular issues in their audits: accounting for possible impairments and the impact of government stimulus. As the recession stretches on, auditors are likely to push companies to take a harder look at possible triggering events and assess resulting impairments of long-lived assets and goodwill. Indeed, it is very likely that more issues will arise as companies approach year-end reporting deadlines.
CAOs also need to prepare for the impact of past and future government stimulus on the company for financial reporting purposes. U.S. generally accepted accounting principles do not contain specific guidance on the accounting for government grants, and so differences may arise in how companies report them. CAOs of companies that benefit from government intervention should brace for more audit and accounting issues.
Undoubtedly, the COVID-19 economic downturn is pushing many CAOs to their limits. But embracing their expanding role is also an opportunity for CAOs to prove their growing value to the company. For a detailed discussion, download the new KPMG report, CAO agenda: How chief accounting officers are raising their game to respond to COVID-19.