From financial reporting to stakeholder engagement

THE Covid-19 pandemic has threatened business continuity across the globe.

In Malaysia, we have seen age-old brands put up the shutters, hotels and businesses closing permanently. It is no longer business as usual during this period of uncertainty.

While focusing on addressing liquidity, stabilising operations and carrying on with business, it is imperative that businesses do not overlook the importance of communicating with stakeholders, especially during these trying times.

Stakeholder communications should be timely, concise and purposeful, meeting the needs of customers, employees, suppliers, shareholders, financiers and regulators.

Communicating now, next and beyond

Simply put, businesses need to communicate with the end in mind. What messages do you want to send to your stakeholders? What do your stakeholders need to know that they can’t obtain from other sources? What is needed to be told now, next and beyond during this period of uncertainty?

Firstly, the Now. This involves telling your stakeholders the impact of the Covid-19 pandemic and the movement control measures on your business. Does the business have sufficient liquidity to survive?

How has this affected your supply chain and workforce?

Businesses should also communicate the specific actions that they are taking to protect the business. How is the business preserving working capital?

How are critical operations being stabilised? How are employees being kept productive?

Are technology and collaborative working platforms being used? How is the business managing cyber, data and control risks? Stakeholders would also appreciate an outlook of the business to enable them to know what to expect.

Secondly, the Next. At this stage, as businesses begin transitioning to the new normal, they may employ certain cost-cutting measures to mitigate the crisis at hand, such as deferring capital expenditure, reducing discretionary spending, revising sourcing strategies and even potential asset sale.

It is essential to keep stakeholders updated on such measures, including any revised risk assessment of the business.

In these uncertain times, businesses should also perform scenario assessments and communicate the financial and key operating metrics to stakeholders.

Thirdly, the Beyond. With vision and strategic advanced planning, businesses can emerge stronger after a crisis.

At this stage, businesses should communicate strategic plans that may include potential acquisitions as asset valuations are at a low, long-term cost reduction strategies through managed services or outsourcing, and initiatives to embed technology and digital.

Beyond financial reporting

Due to the Covid-19 pandemic and movement control measures, Bursa Malaysia and the Companies Commission of Malaysia have granted extensions for the issuance of annual reports and the filing of audited accounts.

Many businesses, especially listed companies, will thus be entering their busy reporting season in the next few months.

Quarterly announcements, annual reports, analyst briefings and AGMS are platforms that businesses should leverage to communicate their activities and plans for now, next and beyond, besides discussing their financial results.

For listed issuers, disclosure requirements are more onerous during this period of uncertainty.

The Audit Oversight Board, through its “Communications to Auditors and Audit Committee dated 7 April 2020”, highlighted amongst others, the need for auditors to pay particular attention to determine whether disclosures in annual reports related to the effects of the Covid-19 pandemic on current operations and future prospects of the public interest entities are sufficient to keep the users of the financial statements informed.

In its Regulators column dated April 22, the Singapore Exchange Regulation (SGX) listed eight areas as a guide to listed issuers to consider disclosing, if required, such as “Impact of Covid-19 on the issuers’ operations”, “Compliance with Covid-19 restrictions”, and “Impact of Covid-19 on the issuer’s earning prospects, liquidity and contractual obligations”.

In this digital age, businesses may also employ social media platforms, electronic media kits and company websites to disseminate information to their stakeholders.

Many of the communication platforms, especially digital and social media, are time sensitive.

Today’s information will take priority over that of yesterday. Quarterly announcements, AGMS and analysts briefings have similar characteristics. Hence, such time-sensitive platforms are suitable to report activities in the now and the next.

On the other hand, annual reports and audited financial statements are considered evergreen platforms.

These reports will be referred to by potential investors and financiers over a longer time spectrum. They are suitable to report the strategic plans and directions for the beyond. Annual reports may also facilitate detailed illustrations and a thorough presentation of the vision and strategies of the business.

Take charge of your communications

Businesses are encouraged to use both time-sensitive and evergreen platforms to conduct purposeful engagement with stakeholders. Be transparent about the challenges your businesses are facing.

Communicate clearly to stakeholders to better manage their expectations. In the current digital world where fake news often overshadows facts, it is critical for businesses to use the right platforms effectively to disseminate timely and accurate information.

Financial reporting is no longer just a compliance and reporting tool. Use it wisely as an engagement platform to build trust and credibility with your stakeholders as it will be key to the sustainability of your business through this crisis.

Ong Chee Wai is a partner and the Malaysia assurance leader in Ernst & Young PLT. The views reflected above are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

Use it wisely as an engagement platform to build trust and credibility with your stakeholders as it will be key to the sustainability of your business through this crisis.