Integrated thinking is key to managing the crisis that has followed the spread of coronavirus around the globe, according the global body of professional accountants IFAC. That is particularly true of those in senior management and those charged with governance it said in its report Maintaining trust and confidence during a crisis.
“The ability of the board and senior management to identify the challenges, develop innovative solutions, lead corporate culture, and navigate through uncertainties, will determine the survival and future of an entity facing a crisis,” it said.
Audit committees can play a key role. They must be vigilant, agile, independent, disciplined, and engaged, said IFAC. It recommends audit committees to stay informed, communicate and collaborate, promote continuous improvement, think holistically and embrace technology.
In some organisations, taking this approach will lead to strengthened risk management. “Adoption of these recommendations may require strengthening and refining of governance arrangements and enhancement to risk management and internal control activities,” it said.
Fraud risk is likely to increase during the pandemic and the financial crisis that is following. That will require stiffer internal controls and the right messages from senior management.
“Tone at the top must make it clear there is zero tolerance for inappropriate activities and encourages employees to speak up if they see mistakes or wrongdoing,” IFAC said.
Things will go wrong, which is why effective communication with key stakeholders must be boosted. That includes improving the quality of disclosures and the assumptions on which they are based is important.
“Disclosing the assumptions, judgments and estimates that underpin scenario analysis, future performance guidance, fair value measurements, impairments, or expected credit losses is critical. It’s a matter of investor protection,” it said. “By doing so, management provides transparency—based on information available at the time and provided in good faith—into the soundness of company analysis, planning, and ability to survive as future facts and circumstances evolve. However, investors and other users of financial information cannot assume that all companies will make uniform assumptions, judgments and estimates in uncertain times—so the potential for inconsistencies or inaccuracies in reported information may increase. This is why transparency is always important.”
IFAC said that effective corporate governance includes the development of business continuity plans. They should be grounded in robust communication between the board/management and key external stakeholders including auditors, regulators, consultants, academic/industry experts, rating agencies, and large shareholders.
“When normal communication channels are disrupted, a company must take steps necessary to sustain transparency and accountability—to avoid misunderstanding, and ill-informed decisions,” it said.