The great reset: How can accountants help ‘build back better’?
COVID-19 has provided a trigger to create a more prosperous world. What role can accountants play in the great reset?
- Flexible working, fairer outcomes, greater digitisation and an emphasis on sustainability are flagged as part of a ‘great reset’ of capitalism, post-pandemic.
- Businesses are being urged to embrace the positives and heed the lessons from the shocks of the past year.
- Accountants will play a big part in redesigning businesses, reporting on sustainability outcomes and helping clients access funds to drive innovation.
By Deborah Tarrant
Health workers rightly received kudos for their pandemic response and recovery efforts, but accounting professionals also deserve applause for the vital part they played in the survival and agility of businesses during COVID-19.
“Chartered accountants have been the unsung heroes of the pandemic. Whether working within a corporate or small business, a not-for-profit or in public practice, their skills have been in high demand,” asserts Peter Vial FCA, group executive New Zealand and the Pacific at CA ANZ. “For some, it has been their finest hour.”
As the world looks to economic recovery, and a massive opportunity to reimagine and reset for growth, the significance of accountants’ roles in shaping the ‘new’ and ‘next normal’ has only just begun, says Vial. After all, the business landscape is forever changed.
Uncertainty for business remains the only certainty, and the call to “build back better” with an economic reset is resounding worldwide.
A long list of thinkers and policymakers have been working with the World Economic Forum founder Klaus Schwab on a Great Reset initiative. Schwab argues that COVID-19 has provided a trigger to start building new economic and social systems – ones that create a healthier, more equitable, sustainable and prosperous world.
Insolvency: to cease or restructure?
Nations and business leaders are being urged to embrace the positives and heed the lessons that have emerged with the shocks of the past year. Think accelerated digitisation, faster decision-making, new operating models and proof points for flexible working, a re-evaluation of risk and an upswing in sustainable practices for starters.
So what role can chartered accountants play in the practicalities of this truly audacious goal?
2021 will see no dent in the demand for trusted advisers with fast turnaround abilities in cash-flow forecasting, budgeting, planning and strategic advice. And those advisers will play the unofficial role of counsellor to clients in dire straits. As financial stimulus and government support abates, this year “the rubber will really hit the road”, ventures Vial.
Comparatively, island nations New Zealand and Australia have fared outstandingly in managing the pandemic. With vaccine distribution underway, an end to COVID-19 is in sight. But the effect of the pandemic lockdowns and border closures continues. Deferred insolvencies and business collapses are anticipated throughout the year.
While some sectors are flying high, businesses in international education, tourism, aviation, hospitality and retail, among others, look likely to face the hard reality of insolvency or restructuring.
The big picture of who and how many will face closure is still emerging. Experts are divided on whether the loudly predicted huge wave of insolvencies will eventuate.
Insolvency practitioners, however, have braced for an upswing in business in the wake of Christmas trading. And the Australian government, at least, has readied the path with new reforms for restructuring and a simplified liquidation option for smaller incorporated businesses.
Redesigning businesses in the great reset
Businesses that survive in the reset are going to be the ones that can adapt swiftly to this new normal – and a lot already have, notes Karen McWilliams FCA, business reform leader at CA ANZ.
“What the pandemic has shown us is how quickly behaviours, mindsets and business processes can change.” The re-evaluation for business brought on by the pandemic has been pretty effective in triggering agility, she says.
“Businesses need to be looking forward at the changed competitive environment, who their customers are and what they’re doing, not looking for a resumption of old behaviours.”
The message is in the terminology. “There won’t be a return to normal – that’s the point of reset, rather than recover or rebuild,” McWilliams emphasises.
Picture: Karen McWilliams FCA.
“There won’t be a return to normal – that’s the point of reset, rather than recover or rebuild.”
It’s about resetting to a new fairer, cleaner, more resilient pathway with an overarching emphasis on the wellbeing of people, planet and sustainable business. And it will be an ongoing evolution.
Many questions will be raised. A big one is how to measure the reset or recovery. “We should be looking beyond GDP,” McWilliams suggests.
On fairness, a standout concern is the new embrace of working from home. In a global study by tech giant Atlassian, which looked at more than 5000 workers in Australia, France, Germany, Japan and the US during COVID-19, seven out of 10 Australian workers said they were better off working from home.
But while that’s OK for people working in the knowledge sector, the practice doesn’t impact people equally, McWilliams notes. “Supermarket workers, for example, have become absolutely critical to survival in the COVID era. Thinking about how we can value all members of society has become a lot more important.”
The rise of health, safety and scenario planning
Businesses that thrive in the reset will be challenging assumptions and testing plans. In this context, communications are critical – with staff, creditors, customers, and management and boards, Vial says.
“Short-term plans will be changing all the time. A plan has to be agile and organic. Where it used to change every two to three months, now it’s informed by weekly forecasts. But in an ideal world, despite the uncertainty, you still need a really long-term plan and, in many instances, an intergenerational plan.”
Areas of heightened focus include health and safety – zooming in on mental health and employee wellbeing – and business continuity, with a much stronger emphasis on scenario planning.
Risk management now has added complexity with a global pandemic exemplifying the significance of external threats for businesses. Vying for priority position are cyber security, human rights, climate change, and the next pandemic.
The perils of focusing on a single offshore market became apparent almost overnight at the onset of COVID, making the need to diversify the locations of offshore suppliers and customers glaring.
In the reset, non-financial factors with financial consequences will be at the fore. Different sectors and locations will have different risks.
“Chartered accountants need to be across these evolving areas to ensure they have the knowledge and expertise to assist their clients and their businesses,” insists Vial.
How accountants can help boost innovation
Another crucial aspect of resetting the economy is innovation, in particular, with a sustainability focus. Businesses are looking for opportunities to innovate with products and services.
The role of an accountant is to support clients with a good idea and work with them to develop, plan and implement it. Accountants should be across any government assistance – grants and other research and development (R&D) programs – available to their clients or organisation.
“We don’t want the tax system to hinder the ability to reset,” adds John Cuthbertson FCA, CA ANZ’s New Zealand tax leader.
He suggests keeping an eye out for increased deductibility for feasibility expenditure under The Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. According to Cuthbertson, the purpose of the bill – to make the costs associated with exploring whether to invest in a new asset or business model tax deductible – is more important than ever.
“We want existing businesses to be able to look at other opportunities in this evolve-survive-and-thrive environment,” says Cuthbertson. “They need to be able to get deductions for formative work to find out if an opportunity is viable.”
Picture: John Cuthbertson FCA.
“We want existing businesses to be able to look at other opportunities in this evolve-survive-and-thrive environment.”
Likewise, in New Zealand, changes are underway to amend loss continuity rules, so struggling businesses can carry forward losses when they raise capital and have more than a 51% change in ownership.
Economy-boosting infrastructure is of interest to both the Australian and New Zealand governments, ranging from the hard infrastructure of road and rail to hospitals and digital infrastructure.
But Vial suggests infrastructure planned pre-COVID will need the new lens run over it for sustainability.
“We’re in a different era and it needs to be fit for purpose. Questions may be around hard infrastructure post-COVID. Are plans for a big road or rail project from a commuting suburb to a CBD going to be the right thing for how we might be working and living in 2022, 2030 or 2050?”
Sustainability reporting as part of the great reset
Sustainability reporting is also on the upswing. Mandatory climate change disclosures are planned for as early as 2023 in New Zealand for publicly listed companies, banks, large insurers and investment managers. Reporting standards that are yet to be determined will be aligned with the recommendations of the Taskforce for Climate Related Financial Disclosures.
It’s a major development for finance professionals who will have to measure, report on and audit these disclosures.
“In the future, the core skills that we have in relation to numbers and financial disclosures will be able to be applied to non-financial risks beyond climate to cyber security and health and safety,” notes Vial.
Businesses will be looking at the impact on the environment of new products and services, building in the costs of recycling products and considering the supply chain impacts. It’s an opportunity as well as a challenge.
It’s a hot topic for CA ANZ’s assurance and reporting leader Amir Ghandar FCA, with the International Financial Reporting Standards (IFRS) Foundation now establishing a global sustainability board for non-financial reporting.
There are huge challenges yet to be overcome for sustainability reporting, Ghandar acknowledges. “And there are a lot of frameworks for sustainability reporting already out there, but the IFRS has as good a shot as anyone to bring about a much more consistent and harmonised approach for sustainability. And we are great supporters of that.”
The auditing and financial reporting world faced exceptional challenges during the pandemic, not least because a maelstrom of predictions, commentary and suppositions made producing estimates and judgements trickier than ever.
“The financial statements have been delivered and audited with the same level of rigour as in any other year, and I’m proud of that,” Ghandar says.
Quick decision-making came into its own with CA ANZ running fast-paced expert forums across the financial reporting chain – bringing together company directors, regulators, standard-setters and representatives of the Australian Securities Exchange, among others – to work on issues arising, such as how to apply the going concern principle in a crisis environment.
Auditors face a real risk of burnout, Ghandar says. “The human side of this has been diabolical; being isolated away from colleagues, and performing work which is very painstaking and challenging and is made very much more so by the circumstances. There has been a big human cost in people’s wellbeing within the profession.”
Hitting reset in public practice
Increased pressure and complexity in the business environment may have prompted many accountants to think about their future.
Felicity Hill CA, director of Auckland-based firm Greenlion, believes the inflection point created by COVID-19 is a timely opportunity for public practitioners to shift their mindset on how they operate.
Many are reconsidering the kind of clients they want to work with, along with their operating models, as well as investing in technology. It’s also about hiring people who fit the new model.
“It’s about deciding what space you want to be in,” Hill says. “There’s a lot of talk about the accountant in the advisory space, but it can be difficult to make inroads without thinking about how a practice is structured,” she says.
“Our target client is someone that wants to do something with their business… Someone who wants to grow the business or diversify it, sell it or plan for succession.”
Greenlion, which moved to a customised monthly retainer basis for most of its clients three years ago, now has a multi-faceted focus on technology and about 2500 clients. The accountants who work there also have tech credentials and real-world experience, for instance, as former commercial bankers and organisational CFOs.
“Once we bring those skill sets in, with traditional accounting skills, then we can wrap ourselves around a client and offer them a full-service offering,” Hill says.
In a similar vein, Amanda Gascoigne FCA, who coaches accounting practice owners from her base in Port Stephens NSW, believes resetting for growth should be top of mind not just for businesses and clients, but for partners in accounting practices.
“COVID has been a time of reckoning. There is some disillusionment out there among those who are not getting the rewards they want financially and the lifestyle benefits. It is an optimal time to reflect and potentially reset their path or embark on a whole new area,” she says.
Picture: Amanda Gascoigne FCA.
“COVID has been a time of reckoning... It is an optimal time to reflect and potentially reset their path or embark on a whole new area.”
When redesigning the practice, re-evaluating the client base also tops Gascoigne’s list. “Are there options to reduce the number of clients you have but service them better; rethink the services you provide and your pricing? How many hours do you want to work a week? Economic circumstances are dealing everyone an opportunity for a reset.”
Make 2021 what you want, and importantly, don’t reset and forget.
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