Organisations face major or minor challenges regularly. The ability of organisations to meet these challenges with urgency and diligence makes the difference and determines which ones survive and those that don’t.
In the current dynamic and rapidly evolving environment in which businesses operate, there is a constant need to scan the environment and make changes in an organisation to reposition it either in anticipation of changes or in response to changes occurring.
Selecting the right tool for a turnaround or restructuring plan can be very daunting as these cover matters ranging from financial, tax, operational and bankruptcy filings, to name a few. However, the organisation must understand that whichever tool is selected, corporate reporting before, during and after the restructuring is an essential part of stakeholder engagement.
Corporate restructuring usually involves divestitures, debt modifications, debt covenant reviews, working capital optimisation, due diligence, tax optimisation, distressed M&A financing, bankruptcy filing, enterprise valuation, process improvements and system enhancements.
While many of these activities are taking place internally, it is the reporting aspects that stakeholders get to engage and interact with regarding these plans. Therefore, an organisation should ensure that its turnaround plans, and restructures consider the reporting aspect early in the process.
A critical piece is providing complete and accurate disclosures on the complex accounting considerations related to these activities. Restructuring options available to organisations could have different accounting consequences and influence the disclosure and presentation of balances and amounts on the balance sheet and profit or loss during and after the restructure.
Organisations should ensure that pro-forma financial statements are available during decision-making regarding these options.
It is vital to provide them because they serve as a means of communicating value to stakeholders and mobilising the needed change for the organisation.
For example, organisations have embarked on group reorganisations having to choose between using market values, previous carrying values or an internally derived value for these transactions when preparing their financial statements.
The value selected could impact the capital ratios of the affected entities, especially for regulated entities with prescribed capital ratios.
Therefore, organisations should aim to have reporting at the centre of their turnaround or restructuring plans rather than being left to the end of the process to avoid surprises and inefficiencies, ensure effective communication, and build trust.