An FD’s checklist for surviving the eurozone crisis

23 Jan, 2012 | Posted by Grant Thornton
Categories: FD Intelligence email, FDI issue 2, Hot topics, Taxation | Tags: eurozone, crisis, europe, eu, audits, supply chain, checks, due diligence, assurances, stability, profitability, allowances, tax, checklist

Is your business as ready as it can be to protect itself against the financial crisis sweeping the eurozone? Review our 11-point checklist to be sure you have it covered…

For more than two years now, fears of a sovereign debt crisis have been increasing among investors as a result of rising government debt levels across the globe and a wave of downgrading of government debt across certain European states.

In mid-January, the crisis took on new significance as Standard & Poor’s downgraded France and Austria – two of the currency zone’s six triple-A rated countries – as well as seven nations not in that top tier, including Italy and Spain.

What’s more, talks over Greece’s debt restructuring broke down again in January, meaning Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.

Meanwhile, in the UK, The Financial Reporting Council (FRC), the independent regulator responsible for promoting high quality corporate governance and reporting to foster investment, felt it necessary to publish an Update for Directors of Listed Companies in the UK to assist them in responding to increased country and currency risk in their annual and half-yearly financial reports.

But what does the eurozone crisis mean to you as an FD?

If you’re part of a company operating in Europe, there are a number of things you should be doing to help steer your business through the current economic climate. If you are not operating in the eurozone, it’s still highly likely you have customers or suppliers who are. So what should finance directors be looking at?

All businesses should pay closer attention to their audits during volatile times. It’s a case of questioning things you might not normally question in such depth, to make sure they are as they seem.

Keeping a closer eye on the ability of customers to pay and suppliers’ ability to fulfil their commitment will also be important – whether by keeping an eye on press reports and other intelligence, engaging your advisory firm to carry out checks, asking for formal assurances, making sure any credit terms are appropriately protected, or analysing their accounts.

If suppliers are in trouble, it may be in your interests to work with them to help them fulfil their commitments to avoid disrupting your supply chain. If customers are suffering and you are a business that depends on a small number of customers, you may also want to engage them in conversation.

In tough economic times it can be valuable to carry out a thorough tax review. Tax in difficult times can actually be an opportunity. Companies should carry out an audit to make sure they have claimed all allowances available to them.

Finally, all companies will need to assess whether the markets they are currently operating in or considering moving into remain profitable and appropriate to their business in light of changes taking place across Europe. This again includes looking at the stability of key clients, the profitability of existing contracts and the reliability of suppliers.

Here, we provide an FD’s checklist that offers advice and guidance on all manner of issues that emanate from the current eurozone crisis. If there is anything on this checklist that is of significant concern to you, please get in touch at fdintelligence@uk.gt.com and we can follow-up with more detail in the next edition.

1. How sure are you about the stability of your key customers and suppliers and the immediate impact on your business?

2. Are there ongoing disputes that are worth money to your business? Do you have the cash to pursue them? Should you talk to third-party claim funders?

3. Are you taking advantage of all available reliefs, exemptions and tax-based incentives? Are you aware of the forthcoming reduction in UK capital allowances?

4. Have you considered your ‘compliance risk’? Are you paying the right tax, at the right time? Are you aware of what the correct tax position is?

5. Do your risk register and supporting procedures still cover the risks relating to the euro or sovereign defaults and further bank collapse?

6. Have you assessed the profitability and risks associated with your markets and any new markets, particularly the high growth/emerging markets? Do your controls cover you sufficiently for moving into new markets?

7. Are your goods delivered to their overseas destination in the most tax-efficient way?

8. Have re-organisations, cost-cutting or budget pressures exposed you to the risk of staff cutting corners or relaxing of controls?

9. Is your current financing structure adequate for both the expected and possible future scenarios for your business? Do your control structures need review?

10. Do you need to reassess fair values in your account? Can existing growth, discount rates and other assumptions be sustained or will valuations need to be reviewed?

11. How recently was your employee-remuneration package renewed? Can savings be achieved and benefits be better targeted to your employees?

You may also find these posts useful:

* Are you paying too much tax on imports and exports?
* Read our International and Emerging Markets blog
* Business relocation in Europe – talk to us!
* Read the Financial Reporting Council’s latest update on increased country and currency risk