Reskilling key for CAs to handle changes in accounting standards

The post-pandemic era should be taken as an opportunity by auditors to make progress on initiatives to allow enhancement of internal audit capabilities, said Dr Maryam Al Suwaidi, acting CEO of Securities & Commodities Authority (SCA) on sidelines of ICAI Dubai Chapter’s recent virtual event focused on the theme ‘How to navigate through Accounting & Auditing issues: Going Concern, Material Uncertainty, Impairment and Debts Restructuring’.

Al Suwaidi said: “Building on the lessons learned from Covid-19, internal audit can play a key role in helping the management to better understand the critical risks in the new normal and provide insights to maintain effective governance and internal control over key business processes. Such initiatives might include refreshing analytics or digital strategies, remote working and conferencing capabilities, developing new analytic methodologies, moving forward with automation pilots, and accelerating planning activities on audits down the road. The UAE government and SCA have been acting as a facilitator in this respect by allowing general meetings of public companies to be conducted remotely and enabling e-voting on resolutions presented during these meetings.”

Sunder Nurani, chairman of The ICAI Dubai Chapter highlighted the importance of reskilling to chartered accountants to keep abreast with the constant updates and changes in the accounting standards and various regulatory requirements.

Nurani also reminded — 300 members of the chapter, who attended the event — about the importance of good corporate governance, robust internal audit which are essential for the corporates to sustain for a foreseeable future as highlighted by Al Suwaidi. He also highlighted the importance of embracing sustainability by the finance professionals. Environmental, Social & Governance (ESG) information reporting which is included as part of Integrated reporting is compulsory for the listed companies in the UAE and such companies need to prepare and publish a Sustainability Report in compliance with the Global Reporting Initiative (GRI) as well as the sustainability standards and requirements issued by the markets within 6 months after their fiscal year end.

CA (Dr) Sanjeev Singhal, Central Council Member of ICAI deliberated on the need for taking a prudent approach in while assessing going concern in the times of uncertainty. he highlighted that uncertainty in the economic environment and volatility due to covid-19 has triggered the need for impairment testing. Disclosures are not sufficient companies are required to test for impairment red flags for impairment and there is low headroom in adversely impacted industries and those which have a weak operational or financial position. the evaluation criteria of going concern may vary depending upon the industry extent and timeline of impact significant to low or which could be given positive in some cases example in the healthcare it could have a positive impact. Going concern evaluation in these turbulent times would require significant levels of stress testing and working out multiple scenarios. the auditors and accountants have enormous responsibility in these testing times.

M.P. Vijay Kumar – CFO SIFY and Central Council Member of ICAI mentioned that all investments in PPE and IA are based on expected future cash generation. With extended pandemic, most enterprises are likely to have situation where the cash generation is likely to be lower than plan, with the problem becoming more acute with uncertainty of future.

The assets are predominantly funded by debt from banks who deploy hard earned savings of the public and from equity contributors, who have contributed high risk capital. It is hence imperative, that financial reporting should communicate the reduction in recoverability of an asset, referred as impairment, so that all stakeholders are able to take informed decisions.

Impairment testing is quite complex, in particular for goodwill, requiring making accounting estimates and involving substantial judgment to be made. For the Auditors, where impairment is material, ISA 701 may be effectively used for communicating their views on why it was a key audit matter, how auditor got convinced on the impairment determined, etc.

David Stark who leads Deloitte’s Restructuring practise in the Middle East and Tom Bullock a Director in the Deloitte Restructuring team presented an insightful overview of the issues facing companies in these challenging times and how to successfully navigate a restructuring process.

The presentation covered four key stages to a successful restructuring starting with understanding and proactively controlling liquidity through having a clear view on short term cash flows and taking proactive action to manage cash, working capital and bank facilities.

The presentation highlighted the importance of having a medium term business plan that looks out three to five years and that this needs to be underpinned by a clear strategy and operational plan. A robust business plan will ultimately give a clear view on cash flow available to meet debt obligations and so will allow restructuring options to be aligned with the operational cash flows of the business. However, to get a consensual deal done requires a number of stakeholders to agree and potentially compromise to maximise medium-term value and so a pragmatic approach is needed based on clear and transparent information.

Anurag Chaturvedi, vice-chairman of The ICAI Dubai Chapter, said: “We all know that current scenarios of business and economic world is surrounded by uncertainties. In the face of continuing uncertainty around the progress of Covid-19 and what a recovery may look like, directors of many organisations are concerned about how their companies will be affected in the short and medium term and what their obligations are under the international reporting standards relation to going concern.

Auditors are equally concerned about auditing these going concern documentation and ensure that financial statements and audit opinion are adequately covered. This event was organised to educate all finance professionals about their roles and responsibilities.

Harikishan Rankawat, Secretary of The ICAI Dubai Chapter mentioned at the time of starting the event that we all are currently going through the rapid outbreak of the Covid-19 and this is the first and foremost a public health emergency and our thoughts remain with those people, who got impacted. As the disruption and implications for Covid-19 impact us all personally, we are also seeing significant challenges for businesses as well at the same time. — business@khaleejtimes.com