Vital lessons from pandemic on risk management
Covid-19 has thrown the globe into a standstill, with various governments re-channeling their resources to combating the existing or anticipated threat to their citizens.
Superpowers such as the US and China are staring at an unprecedented financial crisis last witnessed a decade ago.
The 2008 financial crisis was the biggest economic downturn since the Great Depression and some world economies are yet to fully recover from its impact.
Whether coronavirus will plunge the global financial markets to that level remains to be seen.
Closer home, the government, both at the National and County level stares at a decreased revenue collection from taxes and non-tax revenues whose effect will be felt both in short and medium term.
Increased disposable income will provide a cushion for households in these hard economic times and offer them money at their disposal to spend on necessities like food, shelter and water.
In addition, companies and small businesses will afford to keep their employees longer following the relief given on the taxes.
Although this move will decrease government revenue in form of taxes, the increased consumption arising from an increase in disposable income is expected to mitigate against hard economic times during and after the pandemic.
In adherence to government directives, the public sector in Kenya has scaled down its operations to the core essential services, with most of the employees working on a rotational basis.
This means that service delivery is and will continue to be compromised. Government projects that were ongoing before the pandemic may not be completed before the end of the government’s fiscal year ending on June 30.
The concept of working from home is new for most Kenyans and even stranger for the government and public sector at large.
Public sector entities need to devise creative ways to ensure staff productivity through use of technology.
The indiscriminate sale of shares by investors at the Nairobi Stock Exchange on the first day a Covid-19 case was reported in Kenya is a clear demonstration of the effect of the virus on the economy.
The total market capitalisation shrunk by Sh120 billion in one of the largest declines in a single day in the history of the Nairobi bourse.
Kenya Airways estimates that it is losing at least Sh800 million a month, with the situation bound to worsen.
Globally, the International Air Transport Association estimates that airlines worldwide are set to lose up to Sh11.3 trillion in passenger revenues if the virus spreads further.
One of the greatest challenges for accountants during and after this pandemic will be to provide financial reports that promote transparency, relevance, reliability, comparability and understandability.
This, therefore, demands that a detailed assessment is conducted on the effects of the pandemic against international accounting standards to ensure periodic and annual financial statements communicate objectively to aid in decision making.
The other considerations that require to be made by management of different organisations and the government are related to risk management.
The pandemic represents significant systematic risks which at their business models and lay out contingency plans and activate other risk management options to address the threats presented by the pandemic and take advantage of any emerging opportunities.
Going forward, risk management tools should be made more robust to include such pandemics whose effects are unprecedented and should cover the whole business cycle.
The Government should consider a fiscal policy that anticipates natural disasters and pandemics and develop tools to deal with the effects.
Business should also consider risks associated with sudden change in business cycles, staff working from home, risks associated with development of new IT tools that enable working off- site and staff productivity in times of uncertainty.
Coronavirus, once contained, will leave some valuable lessons for all sectors of the economy.
It will have changed the way we view technology, working from home, saving culture, government and institutional risk analysis, and anticipation for disasters and improvement of our health systems.
This are lessons we can take to the next generations as we seek to rebuild our nation once this dust has settled. — The writer is the CEO, Public Sector Accounting Standards Board