For CFOs, Coronavirus Is Recession, 9/11, and War, All in One

[For more tax and accounting guidance to help you advise clients and businesses through the impact of Covid-19, visit our resource page.]

As the fallout from Covid-19 causes global economic disturbances, Bloomberg Tax & Accounting’s “Talking Tax” podcast, hosted by Bloomberg Tax reporter Siri Bulusu, features Ash Noah, managing director at the Association of International Certified Professional Accountants and a former CFO of a global logistics provider, who shares how CFOs must respond.

Siri Bulusu: It seems like every day the potential impact of the coronavirus grows larger and larger. As we record this today, the afternoon of March 12th, it shows no signs of slowing down. This virus is going to have lots of consequences, but today we’re talking about the effects it will have inside finance departments. If you’re a CFO of a company, either large or small, what should you be doing about this global pandemic and what can you do today?

What are the immediate challenges facing CFOs?

Ash Noah: So the biggest challenge is the level of uncertainty. How long will it go on for, how accurate is the data about this virus? And really to have a plan that is quick enough to respond to what is going on. So agility of the organization and the agility of the business is really going to be tested.

Over the next coming days and weeks, as events unfold, as markets react, as customers react. And so the heightened level of uncertainty is really the biggest challenge.

Is there any comparison you can make to another situation where CFOs have to sort of go about their business with very little staff–is this on the level of the 2008 financial crisis or is this kind of like when lots of people take time off over the holidays at the same time?

Noah: This is a really unique crisis in terms of the effect it has on individuals. This is almost like a 2008 crisis, combined with a 9/11 crisis, combined with a Gulf war crisis. There is so much happening. Talking about the Gulf war, it reminds me, I was actually in Bahrain and Dubai in the Middle East as a CFO for our logistics entity based out of the Middle East. And we had to ship all our staff home. We had to ship families back home to where they belong.

We were at minimum skeleton staff trying to keep the business going. And all nonessential staff were basically sent home. I really am reminded of that situation where we had to be on call. And this was in the ‘90s. We didn’t have mobile phones, we didn’t have the technology we have today. We didn’t have the video conferencing and the zoom technologies.

So yes, it is a similar situation where one had to deal with uncertainty. One had to really keep a close eye on customers, on debt levels, on bank balances, were banks able to meet our needs for cash in the local banks. And so there were some key issues around preparedness. Did we have adequate fuel for our vehicles because we were in the logistics business and stocking up on fuel in case there was an emergency.

There were all these unknowns and, and what is good today is every organization has some level of disaster recovery planning. The levels of, and the availability of, technology and offsite backups. And these plans are really in place for times like this. Those businesses that have robust disaster plans will be able to do better scenario planning at this point in time.

What would you say were the biggest lessons for you coming out of that Gulf War time and your experience in the Middle East?

Noah: Have a disaster recovery plan on hand, know exactly what situations would trigger the action. The more immediate the responses, the better the resilience will be. So this really is about agility and resilience, and that requires planning. Having a plan, knowing emergency contacts, knowing which banks to turn to, knowing and having backup plans around cash, around supply chain, around key critical impacts on your capability to do business. These are absolutely essential, and the CFO has to be involved in this planning, and in recognizing and analyzing the impact on the business.

At the end of the day the CFO is the one that is the steward of the business and should be building the trust within the company, within the enterprise, but also the trust and the reputation outside the enterprise can be severely tested at this point in time. So really having a plan that is robust and being able to invoke it and implement it immediately is critical. Looking back, we were not as prepared as we should have been.

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In terms of communicating with investors, how is it that large multinationals safeguard the process of their quarterly earnings reports to make sure that they go out on time and that they’re reliable?

Noah: So at this point in time, there doesn’t seem to be any immediate danger of not being able to report Q1 results. The levels of staffing, the level of sickness is not as spread that one in five people are not turning up to work unable to perform duties. So the level of automation, as well, in gathering the information, the technologies that are available today, a lot of companies have pretty robust systems that will be able to handle this kind of event. So Q1 results for sure are not at risk.

There’s a level of staff that can still work from home, remotely, can still operate and transact and report that will not be affected in the immediate future until there’s a pandemic even within our environment, where people are unable to work and perform their duties. That’s when this will become rather serious if we are unable to close the books, unable to reconcile the accounts, and unable to publish external results.

So in terms of communicating with the investors, the investors are one of the stakeholders. The communication that needs to happen with internal staff needs to happen with external customers. This is a really important time in how you treat your customers and how you treat your staff. This is what will build customer confidence for the future, or it could really tear it down.

This is when how our business responds to its staff and to its customers is going to be telling and will have repercussions for the immediate future. And it’s an opportunity to build trust with your customers, to build trust with the investors. A level of transparency is required at this point in time. And these are the kinds of things that the CFO should really be involved in, to present these scenarios to internal management to help them to navigate a totally unknown outcome and territory. Now really is the time when the CFO should be doing that.

On the other side of the coin, for federal agencies, like the IRS or Treasury Department, what is the ask from them that they could be doing to make life easier for CFOs?

Noah: So the AICPA has just issued a call for tax relief for individuals and for businesses. Some broad relief measures were asked for in terms of deadlines to allow individuals and businesses additional time, not just to file but also to make payments, perhaps delay them to October 15. Waive the late payment and penalties.

We suggested that the IRS allow for that and other relief, such as waiving underpayment penalties for 2020, waiving the estimated tax payments, and delaying that to the September 15. We also asked for an extension of the IRA contribution deadline for the businesses waiving late payment penalties and interest, that would be something that the AICPA would support. So these are some of the specific items of relief that the IRS should be considering.

[For more tax and accounting guidance to help you advise clients and businesses through the impact of Covid-19, visit our resource page.]