Financial executives surveyed by PwC LLP from March 9 to March 11 all said their businesses are being affected by the coronavirus pandemic.
Of the 50 CFOs and financial executives who responded to the survey, 58% expect a decrease in business, and 54% said the effects will be “significant.” There were 40% who said they couldn’t determine the effects at this point, and just one of the 50 anticipated no effect. No respondent anticipated an improvement to their financial performance.
“The impact of this virus will depend on a company's readiness,” PwC US Chair and Senior Partner Tim Ryan said during a press briefing to release the survey. “Those who have been working very hard to control things like cost-structure liquidity will fare better, and those who weren't will be more adversely affected.”
Ryan continued, “It's important to look at companies versus broad-brush sectors, because their readiness will really determine their ability to weather the storm as they go through this.”
Despite the severe drop in global financial markets, the bright spots include liquidity in the banking system and the response by policymakers at the state, local, and federal level.
“Credit is flowing, capital is very, very adequate, and the hard work that our banks, our regulators, and other stakeholders have done over the last 10 years, coming out of the financial crisis, should and will serve us well as we look to deal with COVID-19,” Ryan said.
But the financial executives surveyed were somewhat more nuanced in their view of the global response to the crisis. Eighty percent are concerned about the onset of a global recession because of the outbreak. While 90% said they expected their operations to return to normal in a few months, the rebound is contingent on the outbreak’s immediate end. Public health officials and medical professionals are unsure about when they will be ready to declare that the pandemic is over and fear that it could linger for some time.
Forty percent of survey respondents expect their financial disclosures to reveal some information about what the pandemic has done to their operations, and another 8% anticipate a significant effect on the disclosures.
Some of the specific areas that worry financial executives include a decline in consumer confidence and a reduction in spending, which was cited by 48%. Forty-eight percent of the respondents also said they were concerned about the financial implications for upcoming reporting periods and a squeeze to cash and liquidity.
Companies are already taking steps to blunt the fallout’s damage. Sixty-two percent of respondents said their companies are cutting costs, and 44% are adjusting the guidance they provide to investors about their financial performance. Some of the actions that are being undertaken also include a reduction in investments, which 32% of respondents said they are doing. Twenty-eight percent said they are changing their financing plans, while 10% said they are rethinking their plans for acquisitions and other deals. But 14% said the coronavirus created no need for them to change their financial plans.
Company supply chains may prove to be the most significant operational area affected by the outbreak. Thirty percent of respondents are looking at changes to their sources for raw materials, manufactured goods, and other items. But 52% saw no need to make changes, and 18% were unsure if changes are warranted.
Concerns about workforce interruptions and a drop in productivity were cited by 42% of respondents, and problems with supply chains were cited by 34%. Some of the lesser concerns include a shortage of reliable information for decision-making, which was cited by 14% of respondents. A failure to have an emergency preparedness plan in place was cited by 6%.
Only 4% of the respondents said they expect to have difficulty raising funds.
The 50 executives surveyed included 80% from large companies. Other respondents represented not-for-profit health care organizations and privately held businesses. Forty-four of the respondents are from the United States and six from Mexico.
“We don't think it's a time for companies or others to hold onto what original plans were for 2020,” Ryan said. “It is clear the virus will change plans of almost every company, and they need time to assess what the new normal looks like.”
For more news and reporting on the coronavirus and how management accountants can handle challenges related to the outbreak, visit JofA’s coronavirus resources page.
— Joseph Radigan is a freelance writer based in New York. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.