On April 1 every year, businesses unroll their budgets and targets for the new financial year. This financial year -- FY21 -- is different. As a relief from the pandemic situation, some compliance requirements of the previous financial year (FY20) split over to the new one, at a time when business sentiment is at a record low.
Dinesh Kanabar, CEO, Dhruva Advisors, captures the dilemma that many CFOs and auditors are grappling with: “How can business budget for revenues? If you cannot budget for revenues, how you will budget for costs?” he wonders.
As corporate India takes uncertain steps into a new financial year, experts say resources of businesses would be stretched to manage various compliances like filings of annual financial results, completion of the audit of financial statements within prescribed timelines, filing of tax returns, and ensuring various approvals from board of directors and audit committee.
“Since there will be a delay in closure of books and compliances for FY20, there will be an overhang effect on compliances for FY21,” says Rakesh Nangia, chairman, Nangia Andersen Consulting.
MP Vijay Kumar, chief finance officer, Sify Technologies agrees. “This is an exceptional period. There would be an accumulation of compliance requirements and some unintended conflicts, too, which will get identified in due course,” he says. Kumar hopes the issues will get addressed through dialogues between industry and the government.
Experts say the present situation is likely to impact various monthly, quarterly, and annual compliances of companies from a regulatory as well as tax perspective. “All balance-sheet captions need to be carefully examined for its recoverability. For instance, receivables could be under stress or for that matter long-lived assets may need to be tested for impairment as well,” says Sandip Khetan, partner and national leader, financial accounting advisory services at EY India. Experts say goodwill accounted in the books of account as a result of acquisitions is likely to be examined for impairment. “Going concern assumption of some of the industries will be under scrutiny,” says Kanabar.
Businesses are likely to face challenges in preparing financial reports, getting then audited, and communicating the usefulness and relevance of the information, says Sai Venkateshwaran, partner & head-CFO Advisory, KPMG in India.
Experts say there would be questions such as whether the financial report portrays fairly the financial position and performance of the company. “This is particularly relevant because of the greater use of fair value in financial reports today, and the year-end fair value measurements may have been impacted significantly by the volatility in the markets,” says Venkateshwaran.
Experts agree in a crisis, preparing and implementing a business continuity plan is much more important. However, even while focusing on crucial factors important for continuity of business, clients are being advised to keep an eye on compliances, says Nangia.
The best way to beat uncertainty in financial numbers is to address this through enhanced disclosures, feels Vijay Kumar. Businesses need to explain better the impact of uncertainty, the basis of various assumptions, and judgments in their financial statements, he adds.
Some experts are wary that in the post-Covid regulatory regime, the government may be under pressure to loosen efforts to nab compliance evaders or ensure the best corporate and tax practices. Vijay Kumar is more optimistic: “We might see 'less government and more governance' in substance for business activities”.
Venkateshwaran feels regulators should take a balanced view towards monitoring and enforcement with a lenient approach towards companies which have defaulted due to genuine hardships.