Corporate regulator Australian Securities and Investments Commission (ASIC) has flagged it will examine how companies report the positive and negative impacts of COVID-19 on their asset values and financial position in the coming reporting season.

In a release on 7 July, ASIC chair James Shipton said: “In the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets.”

“Investors will expect clear disclosure about the impacts on an entity’s businesses, any risks and uncertainties, key assumptions, management strategies and future prospects,” he said.

ASIC also notes: “Significant factors not attributable to the COVID-19 pandemic should be included and given appropriate prominence. For example, asset impairment or reduced performance may be due in whole or part to other factors that were already present or developing such as changes in consumer preferences and demand for products, new competitors or increased supply costs.”

The release, attachment and ASIC FAQ on COVID-19 provide useful check-lists when preparing your results announcement and annual report.

https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-157mr-focuses-for-financial-reporting-under-covid-19-conditions/

Meanwhile, proxy advisers and financial commentators have voiced their concerns that some companies may consider using JobKeeper, rent deferrals and land tax relief to artificially inflate profit figures and executive bonuses.

Think like an astute investor when writing the annual report

In the annual report, the challenge will be to realistically estimate the positive and negative impacts of the pandemic and CoronaRecession on operations, earnings, and – particularly — the outlook. Readers will want to know how the company dealt with the impact; what the continuing damage might be; for how long; and how action has been taken to reduce that damage.

In compiling the COVID-19 related information, it may help to think like a shareholder and anticipate the questions an astute investor may ask: How has your business environment changed as a result of the coronavirus pandemic? What steps has the company introduced? Are they working?

As with all serious issues which confront a company, it is important to be honest and realistic about any miss-steps and what the company has done about them.

Investors will steer clear of companies that lack transparency and responsiveness, fearing they may be hiding something, or failing to manage the situation.

Three final points to consider:

  1. Is there a ‘hero’ story on how people in the company rose to the challenge – went ‘above and beyond’ their normal role?
  2. Don’t blame COVID-19 and the lock-down for every corporate weakness that may have been exposed. Not every piece of bad news can be sheeted home to the virus disruption. Doing so may challenge the company’s credibility.
  3. Proof-read what you’ve written on the topic for authenticity. Imagine what it might sound like if the COVID-induced recession becomes much worse than expected in future months.