How COVID-19 continues to infect financial reporting

Financial Reporting Survey Q3 2020 

1. Background

The year 2020 started very promising for many economies which were continuing their moderate growth paths. But growth came to an abrupt end mid-March with the global outbreak of the COVID-19 pandemic. After the strict measures taken by many governments the situation seemed to slowly go back to normal during the summer followed by a sharp bounce back of infections with the second wave starting in early October. Although the first promising news about potential vaccination candidates emerged sooner than expected the impact of the pandemic, however, on the coming reporting season could be significant: the large downturn of the large economies, the persisting uncertainty about the further development of the pandemic and the widespread effect on sales, supply chain and financial markets add significant uncertainties to the financial results and outlooks which continue to need careful consideration in investor communication.

With the increased knowledge and experience of the pandemic we already observed an increasing amount of transparency in the financial reporting compared to our first survey in Q1 2020

However, as it remains a major risk for the rest of the year and probably beyond, we believe it is a good time to provide updated insights in to how companies have dealt with this major reporting challenge at the end of the third quarter 2020 which can serve as a basis for guidance and recommendations for the upcoming year-end financial reporting season.

For this, we have reviewed the reports and related shareholder communications of 44 of the largest publicly traded companies in Switzerland, Germany and the UK as of 30 September 2020 and the preceding quarter ends. We have focused our review on the non-financial sector, as we believe this sector is affected differently than the financial sector.

We have analysed the following questions:

  1. How much were important KPIs impacted in Q3 and what was their development over Q2 and Q1?
  2. What were the pandemic effects and how detailed have the effects been disclosed?
  3. How did the companies communicated around the high degree of uncertainties involved?
  4. What measures-/ mitigations of the risks have been taken and communicated to the shareholders?
  5. What was the effect on outlooks, if any, and how was the uncertainty communicated?
  6. Are there any trends/recommendations emerging for the year-end financial reporting?

2. Sample group and information provided

We have selected 44 companies in the sample of which 12 are from the UK, 17 from Switzerland and 15 from Germany across the following industries: Pharmaceuticals, Chemicals, Consumer Goods, Transport & Logistics, Telecommunications, Travel & Leisure and other services.

Diagram 1: Sample group by Industry

Of these 44 companies, 4 have issued no financial results in Q3/2020 (1 from Switzerland, 3 UK). One company had its financial year-end on 30 September 2020 and was included in the sample. Of the remaining 39 companies, 22 (50% of the total sample) have issued full interim financial statements in compliance with IFRS or US GAAP respectively. The remaining 17 (39%) companies have issued limited financial results (sales reports, production reports etc.)
In our review we have also taken into account any other information provided to the shareholders/analysts regarding the quarterly results, particularly analysts calls conferences presentations, press releases etc.

3. Impact on results and industries

Although the pandemic is a global issue the effects on the industries in the 9 months period of 2020 was quite different. The same applies to the development over the year. While the impact on revenues was moderate in Q1 due to the short time period since the pandemic became a global challenge in mid-March, revenue significantly decreased in the group of the surveyed companies in Q2 with -12.6% and recovered significantly in Q3 with -3.8% on a year-on-year (YOY) basis. Impact on operating results, however, were much more drastically affected with -69% in Q1, -121% in Q2 and -68% in Q3 YOY.

Even though our sample is not statistically representative, it clearly shows the different impacts by industry. Consumer Goods, Travel & Leisure are immediately and directly impacted by the lockdown. In terms of revenues Travel & Leisure and Mining/Commodities were heavy impacted on YOY with a decrease of 82% and 35%, respectively, in Q3. Whereas Mining/Commodities, like most other industries, recovered significantly from a low in Q2, Travel & Leisure showed no recovery in Q3. The Mining/Commodities industry was mainly affected by the sharp drop in oil prices and significantly weaker demand. Travel & Leisure mainly suffered from a sharp decrease in demand, mainly due to the travel restrictions and the related uncertainties during the whole 9 months period.

Table 1: Change of operating profits in Q3 in the sample group

The Life Science results are mainly influenced by one-off events of two companies. Excluding these, the decrease in operating results compared to the previous year is -5.9%. Automotive and Transport & Logistics showed a favourable development in Q3 resulting in positive earnings trends.

However, the developments were very diverse and volatile from company to company and industry to industry. With this high degree of uncertainties for the foreseeable future, it is very important to communicate in a transparent and clear way with shareholders in order to provide them sufficient insights relevant for their investment decisions.

In this regard regulators specified their expectations in relation to the adequate level of transparency in the financial reporting. In its statement on “Importance of Disclosure about COVID-19” issued June 2020 the International Organization of Securities Commissions (IOSCO) emphasized three main areas where particularly an adequate level of transparency around the impact and uncertainties are required.

Picture 1: Potential Impacts of COVID-19

The potential impacts are widespread and range from short-term immediate effects (such as shop closures) to longer term and indirect effects (such as a change in business models). For shareholders and users of the financial statements it is important to understand the impacts on the business and their consequences on the financial figures. Disclosures should explain the material effects on specific assets and liabilities and on the liquidity and going concern assumption. The related uncertainties might require more detailed disclosures of the underlying scenarios and sensitivity information to provide sufficient confidence to investors.

As these uncertainties and the related effects on the economy might last a longer time, investors likely request more detailed insights in how the strategy and targets have been modified and which measure have been taken to address the current challenges. However, the IOSCO firmly discourages companies to adjust their existing or implement new Alternative Performances Measures (“APM”). Particularly companies should refrain from characterizing an impairment as COVID-19 related, particularly where impairment triggers existed before the pandemic. Additionally displaying hypothetical sales and results without the effect of COVID-19 are considered inappropriate.

In this regard the ESMA provided an additional Q&A to its Guidelines on Alternative Performance Measures in April 2020, stating that rather than adjusting or implementing new APMs companies should provide more narrative information on how COVID-19 has or is expected to impact its financial performance and provide details on how the related assumptions and estimates have been affected.

With this survey of the third quarter 2020 reporting of the selected public companies we aim to provide some examples and insights which we believe provide a good guidance on how to cope with the upcoming year-end financial reporting challenges.

4. Reporting approaches

4.1. The relevance of information and general approaches

Existing and potential shareholders are making an investment decision based on published financial reporting. It is crucial for them to understand how the pandemic and the related uncertainties effect the company and what the financial impacts of the pandemic are and expected to be. Investment decisions are based on estimated future cash flows, which means the information provided should enable the users of financial statements to understand the current and past results, and to form an opinion about the future returns.

In terms of financial performance, the income statement presenting net income and more importantly an operating profit or loss is crucial. An operating result reported under IFRS, US GAAP or Swiss GAAP FER is supposed to reflect a true and fair view of past performance. However, additional information is necessary to provide an understanding of the drivers of performance and to form a basis for future projections.

In this regard understanding the effects and the uncertainties of the pandemic is crucial. The COVID-19 pandemic is a new, very unique disruptive event. To help investors understanding the impacts on past and future financial performance the respond – recover – thrive framework for resilient leaders can serve as a guideline for providing transparent information in uncertain times.

Picture 2: What Investors need to understand

Obviously different parts of the annual and interim reporting documents (financial statements, management commentary) and accompanying information, like investors presentation, pursue different aspects on the road to resilience. The “story”, however, should be told in a clear, transparent and consistent manner through all parts of the documents to provide trust and confidence to the investors’ community.

In the following we provide some examples for the different areas, which we believe have achieved this goal and might serve as inspiration for your own financial reporting challenges.

4.2. Respond and Protect

The pandemic led to an unprecedented lockdown of the global economy in spring this year. This resulted in whole industries not being able to sell and deliver their products and services to customers, disruptions in the production process and supply chain, significant uncertainty with plummeting demands. Even after the lockdown, serious restrictions, particularly travel restrictions and social distancing requirements, remained which are adding complexity to delivery models and result in less willingness to consume and hence decreasing demand. And after a slight recovery during the summer period we are now facing the second wave of lockdowns and tightened restrictions which prevent a speedy recovery.

The foundation of understanding the adequacy of the respond and protect measures and actions, of course, is to understand the impact of the current situation on the past results. Of course, it is almost impossible to isolate the effects of COVID-19 on the revenue development (lost revenue). However, companies used different approaches to make the related impacts transparent to its users. Most of the companies used a mix of quantitative and qualitative information.

With regards to the details disclosed, we have observed a clear trend of providing more transparency and insights, particularly with regard to quantitative information over the quarters.

Diagram 2: Details of impact

As expected in the previous survey, the amount of details presented increased significantly in Q2 and remained stable in Q3. The slight decrease in Q3 is due to the fact that Swiss listed companies are not required to provide comprehensive quarterly interim financial reports. Those companies which provide full interim financial information have at least maintained their level of details.

Impact on past performance

Those companies which provided more insights took different approaches by presenting information in the interim reports and investor relations presentations. The two main approaches were having a separate chapter on COVID-19 related impacts or to describe the impacts in the various chapters.

Example 1: Significant events disclosure – dedicated summary of impacts

Source: adidas AG, Quarterly Results Release,

Fresenius on the other hand, explained the impacts of the pandemic in the respective chapters of the management report and in the financial report. They, however, went one step beyond and made a quantitative assessment of the impact of the COVID-19 pandemic.  

Example 2: Quantitative information on the impacts

Source: Fresenius AG, Q3 2020 Quarterly financial report

Although the quantification of the related impacts is a useful information for investors, additional information about their determination is necessary. Particularly to put investors in a position to form their own opinion about the future development, they need to understand the underlying models and scenarios used to derive this estimations.

Liquidity information

First of all, management has to determine if the “going concern” assumption still applies. Even if management concludes that there is no material uncertainty regarding the ability to continue as going concern, but reaching this conclusion involved significant judgement, accounting standards require appropriate disclosure. Based on the high degree of uncertainty of the duration of social distancing, travel restrictions and other sever restrictions in conducting businesses, the assessment requires a higher degree of judgement as in the recent past. We have not observed many companies putting more focus on going concern assumptions and the related judgment, but are expecting an increase in the year-end financials.

Example 3: expenditure & cost reduction

Source: IAG, Interim Management Statement for the nine months to September 30, 2020,

Apart from the fundamental going concern assumption, several surveys conducted among the investors’ community revealed that information about the liquidity situation is one of their top priorities in times of increased uncertainty and after disruptive events like the pandemic (e.g. FRC LAB, June 2020). Or from the other side of the desk, securing financing and maintaining liquidity after securing the health of employees, business partners, customers and suppliers was the top priority and focus of many companies and their boards (Deloitte AG, swissVR Monitor, August 2020, p. 8).

In the recent past, many established companies with mature business models, did not really focus on the current and near future liquidity situation and the related going concern assumption in their financial reporting. However, due to the current high degree of uncertainties, liquidity and cash generating disclosures are getting more in the focus, also as response to the clear investors need.

We have seen a significant increase in the amount of disclosures around securing liquidity with the three main areas of:

  • What are the current liquidity reserves?
  • What additional financing measures are available?
  • How is cash generation maintained and protected? 

Especially with regard to the protection of the cash generation we observed a significant increase of measures taken, particularly in Q2, and the related amount of disclosure and transparency in this regard.

Diagram 3: Measures to secure liquidity

We have observed quite a few disclosures around the measures taken to recover and protect future cash flows, particularly around capital expenditures, expense reduction and to a certain extend also adjustments to the dividend policy. Although very relevant to investors in the current environment, too, we have found significantly less examples around current liquidity reserves and financing measures.

Example 4: expenditure & cost reduction

Particularly in industries which are affected severely, additional information about the current liquidity status and reserves are important to provide trust to the relevant stakeholders. Due to the travel restrictions the airline providers lose a major part of the revenues and consequently a major part of their operating cash inflow which makes it necessary to provide additional information around securing liquidity.

Example 5: Liquidity reserves

Source: IAG, Q3 2020 Results Presentation,

Impairments and Sensitivity

What probably most preparers and investors have in mind considering the current situation is impairment testing. And indeed, the global economic downturn is for many industries a triggering event which requires impairment testing for non-financial assets. One of the biggest challenges in this regard is the high level of uncertainties and the impact of the determination of the value in use and/or fair value less cost to sell. Particularly projecting future cash flows is a huge challenge in times of increasing uncertainty. This has been confirmed in a survey the IASB conducted (IASB, In Brief: Applying IFRS Standards in 2020 – impact of covid-19, October 2020.) where respondents considered this as one of the major challenges in the 2020 reporting cycle.

Example 6: Triggering event and inclusion of uncertainty

Source: Continental AG, Financial Report as of September 30, 2020,

In our view, using a scenario based approach and condensing it to a probability weighted expected value is a favorable approach even considering the significant amount of judgement required to assign probabilities to the different scenarios. This is a much more transparent way of dealing with uncertainties, which then can be communicated to the stakeholders in a transparent way rather than applying non-transparent risk premiums to the discount rate.

Picture 3: Relevant factors and related uncertainties

With the increased experience of the development of the pandemic and its economic impact through the year we noticed an increase in the number of detailed impairment disclosures from quarter to quarter, with the big leap of course in the half year results.

Diagram 4: Specific impairment disclosures

Based on the significant amount of judgement required in conducting an impairment test with a high degree of uncertainty we observed some examples going beyond the required disclosures to give financial statements users more insights and enable them to make their own assessments about the future projections. In this regard, sensitivity information are very useful. Particularly IFRS only requires to disclose sensitivity information when reasonable possible changes in input parameters would lead to an impairment. But in times with a high degree of uncertainties disclosing “break even” can be very useful in assessing the future projections.

Example 7: Impairment and sensitivity analysis

Source: SGS AG, Half Year Results 2020,

4.3. Recover

Giving insights into past performance, the drivers and risk factors are very much appreciated by investors. However, as they have to take a decision which relates to the future, the past performance is the foundation for making their future projections in order to take an investment decision. In this regard, information about the measures taken in first phase after the occurrence of a disruptive event, the recovery phase, and their impacts are vital.

As seen in Diagram 3 already, apart from securing liquidity and making available additional funds the key measures taken to recover are:

  • Reducing cost and expenses
  • Reduction of capital expenses
  • Revising dividend policies

With 9 months already past the Q3 financials already are a good opportunity to reflect the impact on the measures taken.  

Example 8: Impacts of recovery measures

Source: Novartis AG, Third Quarter and Nine Months 2020,

The unexpected rapid spread of the virus early 2020 required drastic measures and led to the temporary cessation of businesses and economic activities with unexpected results and the need for timely recovery measures. The continuous information over the year of the impacts of the measures taken is an important element for investors understanding and assessing past and future results.

Example 9: Progress report of measures taken

Source: adidas AG, 9 months results presentation,

Some companies already decided to revise their dividends policy and to reduce or defer dividend payments. Making it transparent to investors and explaining the reasons for this decisions is a very useful information in terms of gaining trust.

Example 10: Adaption of dividend policy

Source: Glencore, 2020 Half Year Report,

4.4. Thrive

In times of increased uncertainty it is even more important to provide investors and other relevant stakeholders with forward looking information and an increased transparency how management derived the communicated estimations. It is key to understand what the risks and opportunities for the underlying businesses are, the strategic direction management takes and its impact on the future business models, delivery models and supply chain. Providing insights about management’s expectations and projections, the variety of scenarios used and the foundation on which they are build are a key element in building trust and enabling investors to take a reasonable investment decision.

Example 11: Outlook and assumptions

Source: adidas AG, 9 months results presentation,

Especially for companies with activities in different market segments, regions and/or customer groups a more detailed outlook for each segment is providing a very good insight.

Example 12: Detailed outlook per segment

Source: Continental AG, Financial Report as of September 30, 2020,

It is even more useful when the underlying quantitative data for the outlook and estimates are presented in a transparent manner.

Example 13: Underlying quantitative data

Source: Continental AG, 9M 2020 Results Presentation,

The current information for the time being is very much focussed on short term measures and adjustments to supply chain and delivery models due to the impacts of the pandemic. With a longer duration we might experience that customer behaviours will change, remote service delivery and working models will increase which will result in more far reaching strategic alignments and adaptions.

Example 14: Outlook beyond the current year

Source: Kuehne + Nagel, 9 months results presentation

The appropriate communication of the strategy alignment, the risks and not to forget the opportunities resulting from the current environment might be one of the upcoming challenges for the next reporting periods, particularly the year-end results presentation.

5. Key take away

The COVID-19 pandemic is continuing to significantly effect a high number of industries and major economies. The unprecedented nature of the event and the unpredictable developments in the past 9 months result in significant uncertainties which provides a significant challenge to financial reporting. In addition to the impacts on the past results and the short term future it might even lead to reconsideration of the strategic position of many businesses and their business models, resulting in increased requirements for portfolio adjustments. Securing access to sufficient capital, equity and debt is crucial to maintain and strengthen the market position in this environment.

Against this background, it is in the companies’ vital own interest to provide sufficient and relevant information to their shareholders and other users of financial information. Clear and transparent information on the pervasive effects, how management is responding to this major challenge and its consideration and assumptions regarding the uncertainties in the near future are key.

Based on the review provided we have the following key recommendations for the year-end reporting:

  • A dedicated summary of the impacts of the COVID-19 pandemic is helpful to understand the main impacts and to identify the most relevant aspects in this regard.
  • A clear and transparent communication of the impacts on the past results is key in developing and understanding of the future prospects.
  • Providing insights into management’s outlook, the underlying assumptions and scenarios help investors making their own assessment and future projections.
  • Companies should clearly explain their actions to mitigate the potential effects and give as much quantitative information as possible.
  • Due to the high degree of uncertainties, an increased usage of quantitative sensitivity information is recommended.

When things go well, the pandemic might be defeated in a foreseeable time period and quicker than the strongest optimists have guessed a few months ago. But the challenge of reporting in times of uncertainties will remain as the next wave of disruption is already approaching: the climate change.

Oliver Köster

Director, Audit & Assurance

Oliver leads the Complex Accounting Assurance practice in Switzerland, specialised in providing services related to financial reporting. He has over 20 years of experience in IFRS and US GAAP financial reporting and is a specialist for standard implementation and GAAP conversion projects, M&A and IPO transactions as well as investor communications. His background includes auditing and advising large scale listed companies as well as family owned businesses with a particular focus on the pharmaceutical & chemical, media & technology and real estate & leisure sectors. In addition to publishing numerous articles around financial reporting, Oliver also holds lectureships in financial reporting and financial analysis at the University of Applied Science in Worms and at the University of Zurich.

+41 58 279 6123

Samuel Igoe

Assistant Manager, Audit & Assurance

Samuel is an assistant manager in our Corporate Assurance Services department. He holds a master’s degree in civil engineering, is a chartered management accountant and CIMA Prize-winner.

He has 7 years of finance experience within the Investment Management industry, including financial control and group reporting. He possesses a wide range of IT and finance system knowledge.

He has specific experience integrating subsidiary companies into larger corporate groups. Including assisting in the transition from yearly financial reporting to monthly financial reporting, implementing new finance systems and new processes.

+41 58 279 6643

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