Updated at 26/07/2022 - 10:14 am
The Coronavirus pandemic has significantly changed the operation situation of many businesses, and many businesses are threatened with shutdown, especially small and medium enterprises (SMEs). In this article, we explain why it is important to evaluate the business continuity, viability when considering the presentation of accounting accounts, and some of the factors that should be taken. consider when doing this review.
Why is presenting accounting data for this year relevant to next year's continuous performance? #
Accounting accounts are often considered records of transactions from the previous year, and balances of accounts are snapshots of what the business owns and what the business owes at the end of the year. However, many accounting items are measured and categorized on the assumption that the business will continue to do business in the near future (12 months). If the business is out of business, these accounts will have to be measured and classified on a different basis on a discontinuous basis. Due to the measurement, based on the current operating status of the enterprise, the accountant must choose an appropriate method of presenting financial statements.
Is there a need for an assessment of your ability to continue in business? #
Certainly yes, as this assessment primarily determines whether the business's financial statements are presented on a continuous or discontinuous basis. This assessment also reflects the business plan of the business in the next 12 months.
Financial statements are usually prepared on the basis of a "continuous operation" business. Therefore, if the review cannot operate for the next 12 months, such as intending to liquidate the business or suspend transaction, or there is no practical alternative to doing so, then the Financial Statements should be established on the basis of "intermittent operation".
The evaluation must take into account all available future information, including at least 12 months from the date the Financial Statements are approved and signed by the directors. There is no specific process for this evaluation, but in uncertain times such as the period influenced by COVIS-19, business leaders need to develop appropriate action plans and state them. the feasibility of those plans in the future instead of just thinking.
How can SMEs do that? #
Unless it is a business as usual, you will need to adjust the expected cash inflows and outflows to take into account changes in circumstances, and consider sector-specific or business issues. your business (for example, any threat to the supply chain and when and how the business appeared after the shutdown) as well as the broader economic environment (for example, general demand and the customer's ability to repay debt when it is due).
Here are some factors to consider. It's not a comprehensive list and every business is different, so try to think as broadly as possible.
- Revenue and debt customers - note that you may not be able to trade at normal rates and customers may have difficulty settling on regular terms.
- Payments to utilities and utility providers - some costs may be reduced while business is cut but others may go up due to problems in the chain supply.
- Staff costs - you will need to take into account any changes in employee level and associated staff costs such as commissions, bonuses, national insurance and pension contributions.
- Taxes - tax incentives, deferrals, deferrals help improve cash flow for businesses.
- Short- and medium-term business strategy - perform an analysis of strengths, weaknesses, opportunities and threats (SWOT) that the business faces and its ability to adapt to changing circumstances, thereby provide appropriate operating policies.