Are Accounting Firms on the Knife-Edge Amid Crisis?
No doubt, the COVID-19 pandemic has affected how we live, work, and do business. Its impact can be seen in almost all industries from healthcare, retail, manufacturing to eCommerce.
Many businesses are examining how they are operating and when/where they are spending, due to which accounting firms are experiencing new demands from clients who are looking for more; more insightful financial reports, more value-added service models customized as per their special business requirements.
Along with challenges, COVID-19 has brought opportunities for accounting firms to become a little more flexible and creative in client servicing, helping them not just survive the market fluctuations and economic downturn but also grow.
Table of Contents
Accounting Challenges Arising due to COVID-19
Impaired Assets’ Accounting
It is vital to analyze and test for asset impairment to assess the pandemic’s heavy economic impacts and how your client’s company needs to change as per the market changes.
Cost increment due to the shortage of raw materials or augmentation of labor will hugely affect how that company operates while the market continuously fluctuates and remains uncertain. Closely examine all possible impairment risks emerging out of the pandemic.
Disclosing Financial Statements
The pandemic might have increased disclosure requirements for financial statements of the year – 2020. Certain changes, such as changes in stock compensation, debt, lease, supply, etc., can trigger disclosures.
Impairment and other events affecting liquidity will also require enhanced disclosures because the company will use the estimation of changes in the future.
For example, the company was affected due to a regional shutdown, but they expected the order to be delivered before the year-end; this could have an impact on the way you use estimation concerning future financial performance.
Measuring Credit Losses
CECL – Current Expected Credit Loss changes the loss recognition timing; as a result, internal controls may change to account for credit losses accurately.
Similarly, under Accounting Standards Update 2016-13 introduced by Accounting Standards Board, companies need to calculate losses recognized for assets, typically measured at amortized cost.
Companies using incurred loss model and those with the CECL model will need to gather a wide variety of historical financial information to determine how they can measure credit losses correctly.
Income Tax Accounting & Preparation
With changes in income tax norms brought by the CARES Act, you may need to reassess carryforwards, carrybacks, and other significant deductions impacting the current and deferred tax provision.
Besides that, changes in the CARES Act and the current economic environment may influence the way you assess your client’s need for a valuation allowance.
Companies that are generating financial statements for interim periods might face additional challenges while estimating the full-year taxable income as per the effective tax rate.
Accounting for Business Restructuring
When your client makes plans for restructuring business operations and functions, you need to consider several accounting models, such as:
Calculating impairments of long-lived assets,
Analyzing costs of disposing of business activities, and
Accounting for additional benefits delivered to workers, for instance, incentives for continuous employment while they carry out operational wind-down.
Recognizing Revenue Streams
Due to the disruptions caused by the global pandemic, contracts between businesses might have modified, further impacting revenue streams.
Areas of revenue recognition impacted by COVID-19 will revolve around carriable consideration, collection probability, and measurement of overtime.
ASC Topic 606 guidance outlines the necessary steps the company needs to take to evaluate revenue as a part of the internal control procedures.
Valuable Insights Helping Accounting Firms Improve Service Models
Helping Clients with Cash Flow Forecasts
You may consider offering cash flow forecasting in addition to accounting services you already provide to your clients. For example, you can help them utilize tools that help monitor cash flow, generate cash flow forecasting reports, etc.
Cash flow is one of the biggest issues business owners remain concerned about, and so do their accountants. Therefore, you can help your clients predict cash flows, ensuring they are not moving forward without a plan in hand.
Increasing Demand for Strategic Advisory Services
According to one survey, 65% of participants (service buyers) indicated a need for support with business modeling and revenue growth strategies. Other strategic advisory areas mainly comprise of:
- Risk Management
- Budgeting
- Key Performance Indicator reporting
Now is the perfect time to add such advisory services into your service package and offer the same to your clients, especially to those who have been struggling to recover from the hard pandemic hit.
Buyers needing strategic guidance indicated that they might pay 50% more for a bundle of accounting services, which includes consulting services and strategic advisory.
Businesses are Prioritizing New Services
New services here are those that companies might have previously been handling internally but are now looking to outsource due to insufficient resources or other reasons.
Survey respondents identified the below-mentioned service as high-value for outsourcing:
- Accounts Payable/Invoice Processing
- Data Analytics and Technology Services
- Forensic Accounting
The survey report states that:
- One-third of accounting firms provide accounts payable or invoice processing services.
- 14 % provide data analytics and technology services.
- Only 8 % said they offer forensic accounting services.
Value Pricing Leads to Client Satisfaction
Value pricing starts with measuring the value your services create for a client and then setting a fixed price.
As several businesses are still coming out of the terrific disruption, they seek support to handle their financials. They might be ready to pay a flat fee for a package of value-adding services, providing them with accounting visibility, accuracy, certainty, and peace of mind, leading to greater levels of client satisfaction and loyalty.
Improving Client Communication
It would be great if you deliver essential information, for instance, the latest accounting and tax updates, to clients as quickly as possible. Talk to your clients often about their core requirements, and according to that, create a service pack or a roadmap to help them manage to account effectively.
You may also use apps like Zoom or other mediums such as webinars, newsletters, etc., to support your clients to make a mindset required to survive amid the pandemic and the economic downturn.
Summary
Accounting firms have to gear up for the ongoing economic uncertainty and change brought by the pandemic by becoming resilient. They need to build flexible business models, launch new services, and target emerging market segments while ensuring their clients get a superior customer experience.
Firms that will invest in the right technology and drive effective organizational change by building an adaptable and purpose-oriented core are likely to stay one step ahead of their peers fighting against the COVID-19 disruption wave.
May 13, 2021