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2020/21 Reporting Season: annual reporting? Hong Kong has already been through it

10 December 2020: "We in Hong Kong did the 31 December 2019 reporting season in the middle of COVID. There were some very interesting learning points,” says Andrew Weir.

“It’s going to be a very challenging year end,” points out Weir, Global Head of Asset Management and Global Chair of Real Estate and Construction, KPMG International, and Regional Senior Partner and Vice Chairman, KPMG in China. Hong Kong has already experienced year-end reporting under COVID conditions, and that experience prompts several observations from Weir. 

The first relates to listed companies. Weir says practitioners should ensure that the board and the audit committee are aware, well ahead of year-end, of any significant areas of judgement and focus. 

“The traditional pre-year-end audit committee meeting and the traditional year-end planning meeting with the client are much less formulaic and much more focused now,” says Weir. “Audit committees are now having early consideration of the major judgement areas.”

He continues: “You cannot underestimate the importance of good governance, the importance of good year-end closing procedures, and communication between the management team and its board, between the auditors and the audit committee, and the audit committee itself and the board,” says Weir.

Examples of significant areas of judgement and focus will, of course, include going concern, any necessary financing activities identified to pursue operations going forward and the thorny question of impairment of assets. “We had a very challenging last year-end. A very challenging half year. We are already into 2020 year-ends here. These are big judgement calls,” he says. 

“Going concern and cashflow considerations are now less academic and technical, and more about fundamental questions in relation to the viability of assets in the business. It is a different emphasis,” he says. “We are now focusing on the ability of the assets to generate the necessary cashflow.”

The second of Weir’s observations relates to the recognition that the use of technology in preparation of financial information and the audit of it has taken a big step forward. “We need to understand the impact of this technology and, in particular, we need to understand the challenge of keeping data secure,” he says.

“It is all about the rigour and vigour with which organisations oversee their own data security,” he says. “People must not take short cuts, even if they are trying to do the right thing. Data security is a bigger risk than an external cyber-attack. The use of technology and the handling of data is quantumly different from before. This must be recognised and understood.”

Weir’s third point relates to the use of specialists for valuations. “It is important to recognise where responsibility for valuations in the financial statements lie,” he says. Weir calls for enhanced transparency, discussion, communication and disclosure around valuations at this time. “All major judgement calls will need early probing,” he says.

Finally, he points to the importance of cashflow forecasts. “Best practice would entail having a full cashflow forecast for the year ahead to support the going concern assumption,” says Weir. “Forecasts to support the value of assets, particularly intangibles, are more important than ever…you will need three to five different scenarios.” The next question will be how to do that in an appropriate way, and to the right level of detail, when there are so many unknowns.

Weir’s four observations about year-end reporting are cognisant that they relate to the work, not necessarily to the people undertaking the work. He recognises the further challenges of ensuring all teams emerge from these circumstances with their wellbeing intact too.

He urges all parties to year-end reporting to be open, honest and transparent. “Get everything out in the open,” he urges. “This is a time for quality, high standards and good ethics. ICAEW’s Code of Ethics is so important.”

He continues: “The most important thing is that if you have a problem or a concern you should communicate it and share it.”

He points out that when forecasts and other assessments are being prepared, practitioners, boards and audit committees sometimes have to think the unthinkable. “The world is going through massive disruption. A massive shake up. Think deeply. The more you consult, the more you share, the better the outcome,” he says.

“Accountants are accustomed to a world that is ordered and structured. These circumstances will disrupt that order and that structure,” Weir concludes.

Wellbeing in the 2020/21 reporting season

With the 2020/21 reporting season likely to be difficult for many, ICAEW reminds members of the resources available to them and their families from CABA.

The Audit and Assurance Faculty are sharing their webinar on maintaining wellbeing during audit busy season broadcast on 11 January 2021. Watch the recording.