By Nazatul Izma and MIA Professional Practices & Technical Team
Across the board, businesses in Malaysia are reeling as the economy falters. Bank Negara Malaysia has projected that Malaysia’s GDP could shrink to between 0.5% and -2% in 2020 due to the impact of the COVID-19 pandemic and the government’s pandemic containment measures, specifically the extended Movement Control Order (MCO).
In times like these, resilience is paramount to ensure business continuity. Business targets and growth take a back seat to survival. As stewards in an organisation, CFOs and the finance function must step up to provide the necessary leadership and partnership to keep businesses afloat in turbulent waters.
On 9 April 2020, MIA held a virtual forum with leading PAIBs to find out how CFOs should be bringing value to their organisations in response to the COVID-19 pandemic, moderated by MIA Professional Practices & Technical (PPT) Executive Director, Simon Tay. MIA thanks the Chairman of the MIA Professional Accountants in Business (PAIB) Committee, Datuk Bazlan Osman and the PAIB Committee Members for sharing their insights.
Below are the key takeaways from the discussion:
Finance Should Take the Lead – There was consensus that the finance function needs to pivot from pure accounting and financial reporting to the big picture. CFOs and finance should lead the business in contingency planning and recalibrating business models for the COVID-19 economy.
Dr.Ng Boon Beng said: “This is the time for the finance function to step up and look beyond finance and corporate reporting to assess the business from end-to-end, to rethink their business strategies in the face of temporary and potentially permanent changes in some markets or business models.”
Concurring, Dato’ Merina Abu Tahir said, “Finance must have a view of the bigger organisation and not a finance-centric view. The value that the finance function gives is the overall view and the platform for each respective business unit to manage the business.”
In times of crisis, finance should sound the alarm. “The finance function is the first function that starts thinking, ‘what if things get worse’? They look at what-if scenarios and check on subsidiaries and divisions and how they’re faring – like a temperature check at the start of the crisis,” she explained.
Among the immediate steps and measures that finance must take, said Dato’ Merina, is to review the business continuity plan, revise cash flows, and look at expenditure that enables the business to continue. “We need to find ways to cover the business for crisis and to cover the emergencies that are coming,” for example, emergency spending on digital tools to enable remote working and productivity, while cutting back on expenditure that can be reduced, deferred or cancelled.
Scenario Setting – Scenario and forecast setting, both in terms of cash flow and in terms of business, is the key to survival. “In times of crisis, it’s not a forecast for target setting. The objective now is to take stock of the state of the business and do scenario testing based on various thresholds and trigger points. Based on this forecast, if certain things happen, we know what actions to take,” elaborated Dato’ Merina. Scenario planning driven by finance also sends the message that all business units need to integrate and not operate in silos, she added.
Irene Sin shared how thinking strategically, Sunway REITs’ finance function initiated the company’s high-level scenario setting and business continuity planning. “The finance function started the ball rolling to think about crisis management, assess the impacts in the longer term and have a recovery plan for business turnaround. It is no longer about setting KPIs but the drastic measures that need to be undertaken to survive. Finance focused on high-risk areas and developing more strategies to modify budgets, preserve cash reserves, how to cut or defer costs and stagger payments and to deal with the crisis in a more strategic way,” she said.
Chari TVT emphasised that it is critical for finance to look at pricing associated with products and services and the supply chain when doing scenario planning, in addition to the financial aspects. “Looking at customer profitability, distinguishing profitable and non-profitable customers could help the organisation to preserve cash,” he said. He indicated that telcos track tower-wise profitability to enhance revenue as well as optimise both capital expenditure and operating expenditure.
Prioritise Business Continuity, Cash is Paramount – In a crisis, organisations must prioritise business continuity and cash. “During a crisis, it comes down to balance sheet management vs P&L management,” said Wan Ahmad Ikram. “Cash and business continuity are key in a crisis situation as the immediate focus for business survival.”
Dr. Ng made several suggestions for cash flow management. One, review all banking facilities and credit lines and perform stress testing to determine the maximum limit to which these can be pushed. Two, maintain “constant dialogue to convince others to cooperate”, whether negotiating with landlords for waivers of rent for a certain duration, or persuading customers to settle their dues earlier or even in staggered yet timely instalments to help them manage their own cash flow issues.
Do not omit considering the balance sheet when trying to eke out cash for business continuity. Chari TVT advised companies to support cash flows through reducing capex and investments, negotiating for early payment discounts and reduced interest rates, selling inventory at discounts, and even seeking forgiveness for litigation. “This is a good time for cleaning of the balance sheet to unlock cash,” he stressed.
Do look into accessing financing and bridging loans as well as the other arrangements provided under the government’s stimulus to defend business solvency and continuity. As part of the larger financial ecosystem, banks are doing their part to support SMEs and their business continuity by providing moratoriums on loan payments and other financing aid as per the government’s stimulus package, said Khalijah Ismail.
Datuk Bazlan advised affected SMEs lacking resources in finance to engage with firms providing accountancy services. “This will enable SMEs to gain access to the government’s stimulus package measures or the necessary financial advisory to obtain funding assistance from financial institutions.”
Focus on Stakeholder Engagement – Keep engaging and communicating with all stakeholders to address their expectations and explain the business challenges to maintain trust and goodwill towards the organisation.
“Explain that business continuity must come first,” advised Datuk Bazlan. “As such, we have to manage shareholders’ expectations regarding dividends.” To protect the supply chain, he urged that suppliers be paid on time or even faster to support them and ensure continuity of supply. Regulators need to be managed as well for continuity of operations, along with engaging with the government and the law agencies. Equally critical is to keep the board of directors (BOD) informed and organise regular BOD meetings to ensure strong tone from the top along with ongoing guidance on strategy, risk management and business continuity planning.
Employees are the lifeblood of a company, and business continuity is contingent on employee wellbeing even as they work remotely. Datuk Bazlan advocates that companies look after the welfare of staff under the B40 and M40 segments and noted that certain organisations have instituted an additional allowance for staff in the B40 category. Where staff have to work onsite, sanitisation and adequate protection measures for the organisations’ premises must be prioritised to protect them from infection risks, he added.
Dedicated customer relations are imperative in difficult times to sustain customer satisfaction and loyalty, especially as new customer acquisition can be costly and challenging. “In a crisis, we have an opportunity to engage customers and to keep them happy,” said Mazhairul Jamaludin, who related that ASTRO provides free channels during the MCO period and grasped the opportunity to extend free Astro Go streaming service to ensure uninterrupted enjoyment of its service and retain customer loyalty.
Recalibrate Work Culture, Business Models – While their remit is already expansive, CFOs also need to lead in the area of digitalisation and talent management to sustain productivity during COVID-19, which is fundamental in business continuity. Dr.Shyamala Dhoraisingam suggested that CFOs look into flexible staffing working strategy as well as investments in remote work.
Dr. Shyamala also recommended that companies revisit their values and “reassess the issue of human ethics due to a high rate of loss of jobs due to the lockdown” and also re-evaluate business models as remote work may now encourage automation and innovation.
Dr.Ng concurred that the slowdown necessitates rethinking of strategy and business models and affords valuable time to upskill and future-proof staff through training, mentoring, improving diversity and inclusivity, and fostering the teamwork needed to facilitate remote work.
Managing the Impacts on Financial Reporting – The PAIBs raised concerns about the impacts on financial reporting, for example, regarding the application of MFRS 9 and impairment on their financial statements, especially as reporting deadlines approach. “Perhaps notes to the financial statements have to be provided in more detail to explain the provisions that have to be made. It is expedient that some guidance on disclosures be provided to CFOs and corporates to help key stakeholders to understand that we are now operating under extraordinary circumstances,” suggested Datuk Bazlan.
Simon Tay drew attention to the sixth role of the CFO as stated in MIA’s Competency Framework for CFOs, which entails representing the organisation’s strategic goals to external stakeholders. “Financial reporting, being one of the important means of communication to external stakeholders, could be challenging due to the fluidity of the development of the COVID-19 outbreak. Pertinent areas of consideration include whether the COVID-19 outbreak is an adjusting or non-adjusting event, the impact on impairment of assets, write down of inventory to net realisable value, derecognition of deferred tax assets, fair value adjustments, going concern and related disclosures both within and outside the financial statements. Those in the finance function should also engage their auditors early regarding their accounting treatment and disclosures,” he said.
Plan beyond the MCO – As the MCO will end eventually, businesses need to be prepared for life after the MCO. “For the longer term, we need to consider how we stabilise the organisation after we come out of the MCO,” said Dato’ Merina. “We need mindset change – there will be new business going forward. We have to look at the period after COVID-19 and how we survive after,” advised Mazhairul.
Projecting possible scenarios and prospects, Dr.Ng recommended that companies “get ready to accept change in the way that business will be conducted moving forward.” For example, supply chains are being stress tested right now and he predicts new supply models surfacing that deploy more technology, including further disintermediation and the emergence of peer-to-peer supply chains that will see further growth in alternative financing methods and fintech as well as blockchain for security.
“This crisis is a test of our ability to be agile,” emphasised Khalijah. To pass, “CFOs have to take a longer term view beyond six months and think differently and have a dynamic view. As leaders, finance has to adjust our lens. We can’t just rely on existing frameworks because it’s (the future is) totally unknown,” she concluded.
In terms of risk management, Chari warned that when “large amounts of funds are made accessible, they can be misused so controls should be in place, and ethical standards need to be more stringent moving forward.”
Summing up, Simon Tay urged CFOs and finance functions to also refer to MIA’s Competency Frameworks for CFOs and Finance Functions for guidance on how they can contribute to their organisations in a time of crisis and beyond.
MIA Competency Framework for CFO in Public Interest Entities
MIA Competency Framework for Finance Function in Public Interest Entities
MIA PAIB Committee Members:
- Datuk Bazlan Osman – MIA Council Member and Chairman of MIA PAIB Committee
- Aznorashiq Mohamed Zin – Director, Corporate Compliance Division, Suruhanjaya Syarikat Malaysia
- Assoc. Prof. Dr Mazlina Mustapha – MIA Council Member and School of Business and Economics, UPM Serdang
- Chari Thandalam Veeravalli – Group Chief Financial Officer, Axiata Group Berhad (Retired) and Board Member
- Dr Ng Boon Beng – Chief Executive Officer, Sri Sempurna International School
- Dato’ Merina Abu Tahir – Chief Financial Officer, Lembaga Tabung Haji
- Dr Shyamala Dhoraisingam Samuel – Lecturer, Monash University Malaysia
- Datuk Zaiton Mohd Hassan- Chief Executive Officer, Malaysia Professional Accountancy Centre (MyPAC) and IFAC PAIB Committee Member
- Irene Sin – Chief Financial Officer, Sunway REIT
- Khalijah Ismail – Group Financial Controller, Malayan Banking Berhad
- Mazhairul Jamaludin – Director, NJOI & OTT, MEASAT Broadcast Network Systems Sdn Bhd
- Wan Ahmad Ikram Wan Ahmad Lotfi – MIA Council Member and Chief Financial Officer, Perbadanan Insurance Deposit Malaysia
- Yeo Tek Ling – Managing Director, Advanced Packaging Technology (M) Bhd