Corporate boards of directors are dealing with new problems in financial reporting and accounting, along with governance, amid the novel coronavirus pandemic, according to a recent survey by BDO USA.
BDO’s 2020 Board Pulse Survey found that boards are making communication and transparency of financial reporting and disclosures more of a priority in the midst of the COVID-19 pandemic to convey some of the evolving market conditions and risks faced by their companies. The survey found that 73 percent of the 280 public company board members polled said they have increased their disclosures around new or emerging risks to their business, while 46 percent have significantly increased the time or effort devoted to accounting estimates and forecasts. Meanwhile 42 percent have increased their disclosures around liquidity, and 28 percent indicated they have considered disclosing asset impairments. In addition, 26 percent have added new disclosures for use of government assistance, while 19 percent have considered additional income tax effects in their disclosures. Nearly a quarter of the survey respondents, 22 percent, said restoring and retaining shareholder confidence is one of the more significant governance challenges for the latter half of 2020.
Peter Smith is a Vice President and has full operational responsibility for Centric Digital's West region including market, client and product strategy and execution. He has worked in innovation and growth strategy throughout his career, with a focus on building differentiated digital platforms and lasting brands. Prior to Centric Digital, Mr. Smith led Digital Strategy & Innovation at Capgemini, led product strategy for two successful technology startups, and has industry experience in consumer products, diversified financial services, and technology verticals. He holds a B.A. in Political Science and Economics from Franklin & Marshall College.
Tom Super is Director of J.D. Power’s Insurance Practice and is responsible for leading the continued expansion of the P&C practice.
Super, who most recently served as Director of Strategy for Farmers Insurance Group, has spent 15 years in strategy and general management for such high-profile companies as Booz & Company, The White House and AT&T Corp. While at Farmers, he was a key contributor to the revitalization of the brand, serving in strategy and consumer research areas during his tenure. Prior to joining Farmers, Super was a consultant with Booz & Company as part of the firm’s premier organization and strategy management team. There he advised clients across several industries including consumer, retail, financial services, automotive, media, transportation, health, bio-tech and defense. As an Aide in the White House, Super worked on a wide range of economic and budgetary policy issues on behalf of the President George W. Bush.
Having written or contributed to a number of articles on trends affecting the industry, Tom is a recognized thought-leader in the P&C Insurance space. He has a master’s degree in public administration from the American University School of Public Affairs and received his bachelor’s degree in business from Robert Morris University.
Jared Stevenson is manager of business development and partnerships at Centric Digital. Jared has worked in a wide variety of roles, including operations and academics at Kaplan Test Prep, editing and operations at the National Academy of Sciences, and outreach at Genetic Alliance, an advocacy organization, in Washington D.C.. He spent two years consulting on human rights initiatives in Jakarta, Indonesia. Jared holds a B.S. in Biology, with a concentration in genetics, from Fairfield University in Fairfield, Connecticut.
“I think disclosures have a big impact,” said Amy Rojik, national assurance partner and director of BDO’s Center for Corporate Governance and Financial Reporting. “Early on at BDO, we hit the ground running in March working with our clients on disclosures, particularly with all of the capital being infused by the government, what that looked like and how that was being portrayed to the public, so they could better understand the access to capital for many companies, and disclosing those risks and uncertainties. You’re seeing a lot more disclosure by companies around emerging risks, not necessarily just liquidity, but also what happened with supply chain access, what’s happened with safety of employees, and how that’s all being handled. There’s notably increased time and effort related to accounting estimates, particularly forecasts, for many companies that are teetering on whether or not they’re a going concern. That’s something we’ve been spending a lot of time on as a profession in looking at that.”
Rojik sits on the Center for Audit Quality’s Advisory Council, along with colleagues from the Big Four and other firms, where they’re working with the CAQ on understanding issues such as accounting estimates and forecasts.
“That is a significant issue with the standard setters as well,” said Rojik. “We have 46 percent of directors indicating that is an issue. That obviously goes hand and hand with looking at impairment of assets, and the significance of having to record an impairment and what that means from a financial disclosure perspective, and how to disclose that so that your investors and other users of your financial statements understand what that means, particularly in this timeframe.”
Utilization of government assistance programs such as the Paycheck Protection Program and Main Street Lending Program for small and midsize businesses and the Payroll Support Program for airlines is also being disclosed in some cases. “About a quarter of our respondents indicated that is a focus for them,” said Rojik. “Interestingly, the taxes, which I always think get short shrift, this was a little bit lower. I’d say about a fifth, 19 percent, of people say that’s a focus, but certainly the tax impacts of all these things could and should truly be significant for companies, so that’s not an area to shortcut. That’s probably a significant area where boards maybe could focus more of their time on understanding the complexities of the tax implications of the environment we’re in right now.”
Building shareholder confidence at a time like the pandemic is of the utmost importance. “In order to do all this of this properly, you have to be considering the shareholder confidence in your ability to report these accurately, since many of these are based on estimation and forecasting that you may or may not as a company have been asked to do in such a significant and short timeframe,” said Rojik. “You’re still trying to unwind what’s happening as we continue on through the second half of 2020, and what that looks like for year-end reporting for traditional calendar year filers.”
Other areas of concern from a governance perspective include employee safety in the midst of the pandemic. “First and foremost what we saw as the truly biggest priority for nearly everybody, at least in the near term as we’re still in the midst of COVID-19, is truly the safety of stakeholders,” said Rojik. “That’s employees, customers and vendors. Overwhelmingly, 71 percent of directors say that is their key priority right now, and how to ensure that, how to take on the board’s role in that.” Eighty-seven percent of the board members polled said their organizations have implemented new or expanded workplace safety procedures.
Diversity and inclusion have also become greater priorities for corporate boards, particularly in the wake of the Black Lives Matters protests over the past year. “The second thing that rose to the top was building a more diverse board and leadership team,” said Rojik. That ranked as a key priority for 45 percent of the board members surveyed.
Board members are also concerned about how well employees are operating in a remote environment during the pandemic as many of them now work from home.
“Clearly you’re seeing an intent to transition to some longer-term remote work for at least some employees,” said Rojik. “More than half, 51 percent, say they have plans to do that, given how work has progressed in the remote environment currently.”
Many companies have been forced to cut back on employees, with 38 percent of the directors indicating their organizations have laid off or furloughed workers. “That is a big concern,” said Rojik. “Do we have the right level of staffing? What does that look like going forward for companies that are rebuilding, and what does that look like for companies that are having to do layoffs. That is still very much unknown for many companies and obviously is industry dependent.”
The survey found 61 percent of the directors reported high or moderate levels of disruption in staffing, productivity and the remote work transition, while 28 percent plan to reduce their real estate footprint. “In looking toward action steps in trying to figure out what the workforce of the future might look like, it’s having the right size workforce, but also where those employees are going to conduct their work,” said Rojik. “Some of the questions we posed were about the real estate footprint that companies have. I know that as a firm of significant size, we have offices all across the U.S. That is a big question now that we have immersed ourselves in virtual work environments. That’s been going well for professional service firms, but does it make sense to carry large real estate holdings if the virtual environment is working out well? That’s one consideration in trying to contain costs and seeing what makes sense.”
Another major issue is company culture. “How do you maintain culture in a firm and an organization where you now have a workforce that is maybe geographically disbursed and doesn’t have those kinds of water cooler connectivity points?” said Rojik. “How do you get creative in doing that and be very intentional in maintaining the culture of your company? That’s another aspect that could have financial implications going forward because it speaks to the productivity and satisfaction of your workforce. It also speaks to how you’re engaging with your customers, vendors and others. How does that work over the longer term? All of these are very significant questions that were raised in our survey.”
