Category: Expert Opinion
Topic: Audit

Three key areas businesses should consider with the end of CJRS

Now that many of the social restrictions on our lives have been lifted by the UK Government, it follows too that the Coronavirus Job Retention Scheme is set to end on 30 September 2021.

For many businesses in Gloucestershire, the furlough scheme has been a business lifeline and at some points during the pandemic, almost a quarter of all the working population in Gloucestershire were part of the scheme.

The audit of Going Concern

As an audit professional, the end of the job retention scheme will add an additional dynamic to a Company’s going concern assessment. The audit of going concern was already an area of focus for the audit regulator following the high profile collapse of a number of UK Corporates and the pandemic gave rise to a number of new scenarios which required executives to think on their feet. This was a particularly challenging period for auditors, as the length and extent of the pandemic was unknown. The significant uncertainty around March 2020 resulted in many Companies preparing a “material uncertainty” in respect of going concern within their accounts. Over time, and as companies have successfully navigated lockdown trading conditions, the knowledge and information gained by Boards’ and auditors provided a good benchmark for assessing Going Concern.

Given the severity of the support measures introduced by the government, the removal of the stimulus packages will once again introduce uncertainty to many Going Concern assessments; as there is no longer any clear evidence available to show how Companies will cope without the support measures in place. The audit of going concern is heavily reliant upon the detailed cash-flow forecasts produced by the Board and the three points made within this article are key to understanding some of the questions which your auditor may ask you.

Adapting back to life without furlough will be difficult for many businesses in the coming months and we are advising our clients around three key areas which are critical for all businesses to think about now:

1. Business planning and cash flow forecasting

Business owners may be wondering whether there will be a need for the furloughed staff back within their business on a full-time basis and will be asking themselves whether the demand for their goods / services is back to, or near pre-pandemic levels, in order to support the full time return of staff.

Scenario planning and cash flow forecasting is critical to assessing what could happen on your business in the coming months. We are encouraging all business owners to review a range of scenarios and the associated cash-flows which could arise from these situations. I.e. what does a full time return of staff look like on the business with only 80% demand? What did demand look like at its worst point during 2020 lockdowns and how long could the business survive in this environment with a full workforce?

Plans should be rigorous and capture all business costs, but also be clear and easy to understand / refer to as part of your decision making processes in the future.

2. Review your business culture

The pandemic has been incredibly tough for everyone and we have all reacted differently to the challenges we have faced. We must appreciate that not everybody returning to work will be able to hit the ground running and it may take many months before staff are able to familiarise themselves with new business processes, commuting and the pressures which full time work brings. Business owners should use this opportunity to re-connect with their staff and take time to understand their individual requirements which work for both the individual and the business needs.

3. Legal and compliance

The return to work from furlough, changes to working conditions (i.e. introduction of flexible working policies) and the possibility that some staff may unfortunately be made redundant, presents a number of potential compliance hurdles for many business owners. We recommend that small business owners familiarise themselves with the latest information concerning employment law and take advice from professionals where matters are complex. The Chartered Institute of Personnel and Development recently released a good guide in respect of post-furlough life and the full guide can be downloaded by searching “CIPD Coronavirus (COVID-19): Post-furlough guide”

As always, it is important to engage with your Auditors early and to understand what information they would need to be in a position to sign off their Auditors report. Early discussion and talking to your auditor about market trends will help you to produce forecasts which are considered to be “best practice”. This will not only lead to a better understanding of your business, but will support you in reaching the right conclusion in respect of going concern for your year-end financial statements.

We are using software such as Futrli to provide business owners with the insights they need to help predict the future of their business. If you would like to hear more about how we can help you manage your cash flow, help with your Going Concern assessment and navigate these uncertain times please do get in touch with or on 01242 776000.