NZX-listed company accounts came through 2020 with some close calls - PwC

NZX-listed company accounts came through 2020 with some close calls, PwC's Karen Shires says. Photo / 123rf

The financial reports of NZX-listed companies over 2020 showed that they came through the challenges posed by Covid-19 in good shape, although there were some close calls, PwC's chief risk and reputation officer Karen Shires says.

"If you look back over 2020, what we really saw was that entities performed stronger, or better than we would have expected when we went into the first level 4 Covid lockdown in March last year," Shires told the Herald.

"That has come through in their financial reporting, but also in the audit reports," she said.

PwC looked at the auditor reports of 106 NZX-listed companies.

Twelve of those reports identified key audit matters (KAMs) around issues of going concern.

These "close calls" were areas of concern that required more work by the auditors.

"It was quite a large number," she said.

"If you think back, so many entities had to respond quite quickly to the lockdown, so therefore it was not unexpected that a large number had to go and raise capital, renegotiate banking covenants with banks, and look at their liquidity management, so a large number of auditors called that out in their audit reports."

PwC categorises audit reports into green, orange and red "traffic lights".

"In the 106 companies that we looked at, six of those had orange flag – an auditor report where it flagged material uncertainty reloaded to going concern – in flashing lights a real warning about those particular entities."

But of the six, all had the same matters in the previous year, before the onset of Covid.

"It was not necessarily due to Covid, although the pandemic may well have exacerbated the problem.

"The audit report is how auditors tell the story of their audit. We continue to encourage savvy investors to use audit reports to help them," she said.

PwC has looked at the auditor reports of 106 companies

Shires said companies "at the top end of town" had proven to be far more resilient than expected when Covid struck.

"And I think they are even more resilient now than they were in March 2020."

Looking ahead, Shires said the bigger challenges facing companies were ones of supply chain and labour supply.

"With borders closed, trying to get people is a big problem," she said.

"These are practical problems, but they could become an accounting issue if you can't get stock or you can't run your assets," she said.

"But at the moment it's more of an operational problem."

Of the 22 June balance date reporters, 10 claimed the Government's wage subsidy – amounting to $177.5m.

Only four of those that claimed the wage subsidy made a net loss for the year.

"However, this is a simplistic way to analyse whether a company should have claimed the subsidy," Shires said in a report.

"It is likely that many of the businesses who claimed the subsidy would have reduced their employee numbers quickly if it hadn't been available.

"Companies were transparent, usually by way of a narrative, in disclosing the quantum of wage subsidy received. Yet, there was no consistency in presentation."

The accounting standards permit a company to either report the subsidy as other income or as a reduction of expenses.

Often a narrative explanation was included detailing how the subsidy had been treated, Shires said.

"On reflection, given the public interest in wage subsidies there was a missed opportunity for standard setters and regulators to have made their expectations clear when it comes to reporting the wage subsidy so we had consistency in reporting," she said.