Doing Business in Indonesia: Accounting Practices of Companies During COVID-19
COVID-19 has affected businesses from around the world. Online classes and Work from Home have become norms. At the same time, most of the business activities, like buying and selling take place from home.
Countries have prohibited mass gatherings. At the same time, the implementation of Social Distancing and Observance of Health Protocols like wearing of facemasks have taken place and became now the New Normal.
Unfortunately for some businesses, with the restriction coming from the government, they were not allowed to operate for quite some time. And even if they have resumed till now, they still feel the impact of the slow economy. Some of them have already decided to close while some are thinking of selling their businesses or merging with another company.
The question is… which investor will buy your business or merge with you if you don’t show a good record of accounting? Even if you just want to avail yourself of some business loans to continue your business, you need your accounting to work for you. This is where the great responsibility of accountants is at stake.
So here are some Accounting Practices that Accounting Firms are doing in order to help their clients execute their Accounting during COVID-19.
The Recasting of Financial Transactions of Companies During COVID-19
What should Accounting Firms be doing for their clients in terms of Recasting of Financial Transactions? Well, they should be examining the Financial Statement of the company. They have to produce evidence and information on how the move is feasible for investors and lenders.
Accounting Firm should be creative about this in such a way they still follow the rules. One of the common practices is EBITDAC. It’s the acronym for Earnings Before Interest Taxes Depreciation Amortization Coronavirus.
EBITDAC is an Accounting Practice that recasts the history of your finance to remove one-time expense items that are not ongoing. The practice places the finance at a later quarter of the year. Example of these items include:
- Fire accidents
- Employee theft
- Act of nature like floods and earthquake
- Cars bought using the company money for the personal use of the business owner
- Family members on the payroll that has been inactive
- Remuneration for active family members on the payroll which were being paid a bit higher
- Other compensations paid a bit higher than the fair market value
- Club memberships for the personal use of the business owner
- Travel and vacations of the business owner that the company paid
Recasting is an Accounting Practice critical in valuing any business. If you don’t recast in times of COVID-19 and you eventually decide to sell your company and just use tax returns as the basis for business projections, your revenue and earnings would be understated. The same goes for the offer coming from your buyer.
Providing COVID-19 Provisions on Audit and Attest Services
With the work from home setup of some Accounting Firms, some impacts of COVID-19 must be estimated and be reflected in the Financial Statement of the Company. Companies are mandated by the government to provide their employees with Personal Protective Equipment and some other assistance which also affect the finances of the company. They also need to provide some emergency measures, let’s say, a COVId-19 outbreak happened in their office and it had to close for quite some time for disinfection. They should add some provision for COVID-19 supplies.
Also if physical inventories are not safe to perform, Virtual Accounting Procedures to estimate such have to performed instead.
All the things mentioned above should be included in the report of the Accountants on their Audit and Attest Services.
Carefully Scheduling Tax Dates
Because of COVID-19, some deadlines for taxes have been extended and some remained. Accountants should be well versed enough to identify the different taxes and their new dates of deadlines so that their clients will not get penalized. After all, they are the ones who will be blamed if those problems will happen in their custody.
Communicating Consulting Services
Companies during COVID-19 may halt, suspend, or do their activities online if they want to. Whether it’s on the part of the Accounting Firm or the Client, they should inform one another in writing the reason why.
The most common reason though is to improve the Cash Flow of the company. With COVID-19 in effect and the income coming in may not be good, the company will really make its effort to cut some of its expenses.
Taking Important Considerations for All Services
Aside from the usual Accounting Services given by any Accounting Firms, the following are additional tasks Companies during COVID-19 must do:
- Reviewing existing engagement letters.
- Bill and Collect from Clients
- Replying to requests from lenders
In times of COVID-19, Accounting Firms should extend sympathy to their clients and be responsive to their needs as everybody suffers from the effect of the Pandemic. However, business is still business and we should always implement our business policies to everybody.
Studying New Service Requests
With some measures implemented by the government for COVID-19, some changes were made on legislation, programs, and expansion of businesses. Many companies might rely on Accounting Services Providers for the compliance of their business. Although they give opportunities for Accounting Firms, they also come with risks. Study their different current scenarios before accepting them as clients.
Employ Risk Management Considerations
Companies during COVID-19 must still employ Risk Management Considerations especially on the following concerns:
- Accepting of engagements and clients
- Letters of engagements
- Objectives and scope of the engagements
- Responsibilities of the clients
- Responsibilities of CPA Firm
- Provisions of Risk Allocation
Just like any other company, your Accounting Firm must also maintain its Good Performance and you can only do it by studying the different current situations of your different clients before involving yourself in it.
Do You Need More Advice on Accounting Practices of Companies During COVID-19?
If you need further advice on other Accounting Practices of Companies During COVID-19, We at 3E Accounting would like to help. We’re among those known Indonesia Accounting Experts that can offer you quality Accounting and Bookkeeping Services for your company.
We can’t wait to serve you. You can easily Contact Us within seconds.