Transparency goes a notch higher in financial reporting

In the wake of Covid-19, governments and businesses have used various interventions to mitigate disruptions. According to the World Bank, Kenya’s GDP growth scenario for the year is expected to drop to 1.5 percent with an adverse scenario of a recession of about one percent pegged on supply and demand shocks.

For listed entities, continuous reporting, including financial reporting is crucial to shape the understanding of these disruptions.

This is where the role of accountants, financial analysts and external auditors is most critical in demonstrating how the numbers fit the narrative.

Basically, increased transparency in financial reporting disclosures is now essential because anything else will have far-reaching effects.

Take governments, for instance. The financial implications of economic interventions set out to both cushion citizens from the shocks have to be recorded with precision because their consequences will be analysed for decades.

Further, mobilisation and use of resources for this purpose requires a heightened level of accountability and transparency to uphold public confidence.

When preparing financial statements, accounting standards require management to assess the ability of their entities to continue as a going concern.

The financial projections, therefore, will need to factor in the new economic outlook despite the uncertain future outcomes at this time.

The adequacy of the revelations of the uncertainties faced by managers in making this decision will be twofold: factoring them into the financial reports and the detail to which they are divulged.

In fact, the focus in financial statements will shift from profits to survival and protection of livelihoods for a while.

We have seen listed companies issue profit warnings as effects of the pandemic on different sectors.

The banking sector is smack in the middle as it restructures loans in a bid to offer support to businesses to avert a major crisis.

The International Federation of Accountants and the International Accounting Standards Board stepped out to guide entities on how they should assess Covid-19 events and factor them in the financial statements.

Closer home, the Institute of Certified Public Accountants of Kenya released a statement guiding how expected credit losses should be assessed during this time. Clearly, the accounting universe is gearing up for an unparalleled level of reporting.

Regulators support the new realities.

The Capital Markets Authority, for instance, allowed companies time to submit financial statements. The central bank issued a guidance on pandemic planning for the banking sector.

Summing up this new reality, opacity in financial statement disclosures cannot be tolerated, as the accounting profession delivers its bit in this new normal.

Concerted efforts by analysts, auditors and regulators are necessary to facilitate accountability and transparency because uncertainties need to be accounted for.