I came across an interesting recent commentary by Mark Spencer of BDO, titled We need to think slowly during the coronavirus crisis.

Here are some extracts:

• When I say we need to slow down and think, I mean we should break down the different components of what might happen and understand which first, second and third-order impacts could emerge for the business…
• In my opinion, financial services companies should be focused on assessing their risk exposures and identifying areas of stress based on various scenarios. This should be done while keeping the coronavirus in perspective. I am concerned about tunnel vision and people thinking only about the substantial risk to companies like airlines, cruise liners and hotels. I say take a broader view and consider second and third-order effects (both blue-sky and not-so-blue-sky).
• In terms of accounting, a number of estimates are done on a forward-looking basis, such as IFRS 9 expected credit losses. While defaults are expected to increase, there is also financial aid being committed by governments. Impairment tests for non-financial assets are also done on a forward-looking basis. They are based on cash flows generated in the future that are discounted back to the present value to determine the recoverable amount. Clearly, these cash flows are going to be impacted by the coronavirus. But so is the discount rate. While cash flows are less, central banks are cutting rates drastically so the discount rates will also be less for a period of time as well. And there will be increased requests for refunds, which will impact revenue recognition, and so on and so forth.

The overall message is to reflect on all developments “in a thoughtful manner in terms of the overall impact,” to “please run all such scenarios through your models, and as we like to say, please keep calm and carry on.”

It’s a good message, in that even if much in the world is currently driven by chaos and reactivity rather than informed strategic planning, financial reporting will only be of any value if it finds a meaningful longer-term perspective on which to base itself. There’s clearly some kindship there with some of the comments I cited in an earlier article on the impact of COVID-19 on IFRS 9, for example ESMA’s emphasis on giving “a greater weight to long-term stable outlook as evidenced by past experience.” In that article I called that as much an existential position as an accounting one – that is, it’s arguable that even more than usual, financial statements will currently be conversations about a desired future state as much as they’re predictions of them. It’s unclear though to what degree preparers, auditors and users will be capable of engaging with them as such. Rather than worry about defining income statement subtotals (an exercise for easier times if there ever was one), maybe the IASB should be considering an emergency measure to present supplemental core financial statements, to illustrate extreme ends of the ranges of possibility…

Well, let’s look at another example of interesting MD&A disclosure. This is from Corus Entertainment Inc., a “diversified Canadian communications and entertainment company.” It’s included in the “risks and uncertainties” section and therefore somewhat legalistic, but with an apparently good amount of entity-specific information blended in:

• The Company is closely monitoring the evolution of the novel coronavirus (“COVID-19”) situation. Several provinces in Canada have instituted closures of non-essential businesses. At this time, media and broadcasting operations have generally been recognized as essential workplaces across Canada. The Company has suspended all travel, slowed down the hiring of new employees, and taken active steps to implement physical distancing and other measures recommended by public health agencies, decreasing the number of people in the Company’s offices and broadcast centres. The Company has deployed additional IT equipment and has implemented multi-factor authentication for accessing company networks and webmail, enabling a significant number of additional employees in all locations to work from home securely. Appropriate business continuity measures are being taken to ensure uninterrupted service of the Company’s television, digital and radio operations.
• The Company is updating employees on a frequent basis to provide information on the situation and on necessary precautions to take.
• It is too soon to gauge the impacts of the current outbreak, given the many unknowns related to COVID-19. These include the duration and severity of the outbreak. COVID-19 is altering business and consumer activity in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things, border closures, severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity markets. Additional measures may be implemented by one or more governments in jurisdictions where the Company operates. Labour shortages due to illness, Company or government imposed isolation programs, or restrictions on the movement of personnel or possible supply chain disruptions could result in a reduction or cessation of all or a portion of the Company’s operations. The extent to which COVID-19 and any other pandemic or public health crisis impacts the Company’s business, affairs, operations, financial condition, liquidity, availability of credit and results of operations will depend on future developments that are highly uncertain and cannot be predicted with any meaningful precision, including new information which may emerge concerning the severity of the COVID-19 virus and the actions required to contain the COVID-19 virus or remedy its impact, among others.
• The actual and threatened spread of COVID-19 globally could also have a material adverse effect on the regional economies in which we operate, could continue to negatively impact stock markets, including the trading price of our Shares, could adversely impact our ability to raise capital, could cause continued interest rate volatility and movements that could make obtaining financing or renegotiating the terms of our existing financing more challenging or more expensive. Potential impacts include, but are not limited to, an impairment of long-lived assets, an impairment of investments in venture funds and a change in the estimated credit loss on accounts receivable.
• Any of these developments, and others, could have a material adverse effect on our business, financial condition, operations and results of operations. In addition, because of the severity and global nature of the COVID-19 pandemic, it is possible that estimates in the Company’s financial statements will change in the near term and the effect of any such changes could be material, which could result in, among other things, an impairment of long-lived assets, impairments of investments in venture funds and a change in the estimated credit losses on accounts receivable.
• The Company’s financial priorities remain unchanged. Importantly the Company remains committed to increasing its financial flexibility over the longer term. In this environment, however, the Company believes it is prudent to conserve cash out of an abundance of caution. As such, the Company expects to refrain from buying back shares under its share buyback program in the immediate term. Consistent with this approach, the Board of Directors has elected to defer its decision on the declaration of the June dividend at this time. The outside date for a decision on the declaration of the June dividend is June 9, 2020 by which point the Company expects to have more clarity on the nature and length of the impact of the COVID-19 pandemic. For greater clarity, the Company is not reducing, eliminating or temporarily suspending the dividend at this time. The Company is constantly evaluating the situation and monitoring any impacts or potential impacts to its business.

The opinions expressed are solely those of the author