Covid-19: Practical challenges to businesses


During the Covid-19 crisis, most of the businesses’ supply chain was under severe stress, to say the least. Issues from procurement of goods/raw materials to transportation to production facility to delivery without forgetting the human component had to be managed on a day-to-day basis and it was challenging to make any sensible short-term planning. Notwithstanding all that, companies had to manage the blood life of any businesses: cash flow constraints – timely recovery of debtors, payments to suppliers and employees, and servicing banks’ interests and debts. For many, the businesses would have gone done the bankruptcy route much faster if it was not for government financial help provided by many, but not all, countries. And the level of financial assistance provided differed significantly from one country to another.

For many businesses, either they were ordered to close down by law during the lockdown, or for others who were not in the scope of the lockdown regulations, they faced multiple operational challenges: they were not prepared to work from home (IT infrastructure not ready, lack of reliable IT equipment, poor / saturated internet connections in some areas, etc), staff were not able to travel to work due to travel restrictions, staff illness, staff staying at home to attend to elderlies, children and sick relatives and some operations were just not suited to be transferred to a home environment. And for those who were able to work remotely from home, there were additional challenges to their own private and family situation: working couple not having sufficient (breathing) space at home to work together, children at home who needed their own space for studying or playing, parents having to take care of underage kids at the same time as working, etc..

For those involved in the preparation of the accounts, they were faced with additional technical and business challenges:

  • Difficulties in obtaining information from management and non-management resources,
  • Difficulties in accessing workplace, offices, factories or warehouses,
  • Access to key management resources who could have been redeployed to other areas of the business on short term basis,
  • Issues in assessing the impact of cash flows, EBITA,
  • Breach of (bank) covenants which could lead to cash flow repercussions.

For those who are involved in the preparation of the financial statements, it is essential that all the above issues are considered in order to ensure the quality, completeness, accuracy and exhaustivity of the financial statements.

For the December 2019 year-ends, we have seen many reports disclosing the pandemic issue as non-adjusting post balance sheet events. However, there were also cases that the consequences of the Covid-19 outbreak were so severe that it had led to a significant deterioration of the financial situation after the reporting date so that the going concern assumption was no longer appropriate. In those cases, this had led to carrying out adjusting post balance sheet events in their 2019 financial statements. This is in line with both Luxembourg GAAP and IFRS.

The post balance sheet events issue is even more challenging to assess for those businesses having their financial year ends ended during Q1 2020, when the World Health Organisation officially declared the Covid-19 outbreak a pandemic on 22 March 2020.

Jimmy Tong Sam, Partner Auren Luxembourg

Romeo Rakatomanga, Senior Auren Luxembourg