Consequences of Covid-19 on Accounting and Finance: A Case Study of Tesco

This report discusses the impact of Covid-19 on accounting and finance, with a case study of Tesco. It covers issues faced by the company, their reactions, and recommendations for improvement.

Academic skills for
accounting and
finance

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
Issues faced during Covid-19 pandemic in the field of accounting and finance.........................2
Description of issues during pandemic.......................................................................................2
Reaction of company either positive or negative with respect to issues faced...........................3
Recommendations.......................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES ...............................................................................................................................6
1

INTRODUCTION
In every organisation there are numerous departments which contributes in their effective
functioning. Finance department is responsible to supply funds and its recording and
interpretations are done by accounting department. Finance act as a life blood for every business
because no activity can even start without funding and its accounting consists of organising,
classifying and interpreting data in various statements which are required to be audited for their
accuracy. (Bilal and Ilyes, 2021.)This report will cover consequences of Covid-19 pandemic
which affects every sector in the field of accounting and finance. Several unfavourable situations
faced by company Tesco, a big British supermarket deals in groceries working at diversified
locations and it’s how it reacts either positive or negative with respect to the challenges faced. In
the last it will also include recommendations for those drawbacks through which it can achieve
its goal to maintain its standard in the changing scenario.
MAIN BODY
Issues faced during Covid-19 pandemic in the field of accounting and finance
Covid-19 is a pandemic disease which is communicable in nature it spreads very quickly. It
impacts every sector of the economy at global level. Every enterprise is still facing hurdles in
conducting their operations smoothly. Accounting and finance department is also affected by the
pandemic. In context of Tesco, challenges faced by it in times of this devastating disease can be
explained as given below-
Description of issues during pandemic
Finance is concerned with procurement and utilisation of funds whereas accounting
involves recording transactions, their interpretation and organising data in various financial
statements. (Chauhan, 2019). With respect to Tesco, global health crisis times bring events
which are not in favour of this company. Those challenges can be elaborated as described below-
 Liquidity- For conducting day to day operations of the business, working capital should
be sufficient to run activities. Management of cash and its flow is vital to ensure liquidity
in an enterprise. In context of Tesco, a sharp decline in annual free cash flow is observed
which results in shortage of funds. Annual free cash flows show the operating flow of
cash less expenditures which are capital in nature. It is facing negative cash flows which
signifies that it is not able to settle its expenses out of its revenue.
 Changes in standards of accounting and regulatory framework- In the times of financial
hardship due to covid-19, a minor change in following accounting standards results in
poor accounting system (Flamholtz, Johanson and Roslender, 2020) With respect to
Tesco, it introduced a new IFRS-16 which consists accounting of lease. It does not
classify operating or financial lease separately, net assets and diluted EPS decreased due
to introduction of new IFRS.
 Modification in tax Regime- It refers to tax slab and its rate according to the various
persons. Tesco is completely following tax structure and avoids tax evasion and its
avoidance and makes sure that all the employees working on the behalf of this company
follow the same but at the time of pandemic increase in the tax liability due to its
decreasing revenue and increasing expenses creates a burden on the employer and
employee. As employees are getting less dividends and employers are not able to create
good market share.
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 Management of payroll- It includes management of employee’s earnings, benefits and its
perquisites (Lei, Deng and Liu, 2020) Payroll accounting records all the transactions
related to employee's compensation in ERP software. At times of covid, due to the
updates in the software Tesco faces many difficulties to compute transactions of payroll
because work from home policy unable to become friendly with the new applications
and its usage.
Reaction of company either positive or negative with respect to issues faced
Global epidemic gave new threats to the organisation which are not under the control of
it. Every issue result in some consequences either positive or negative. Tesco's reaction to the
above mentioned problems can be expressed as given below-
Liquidity is the regular flow required for a company. As stated above, Tesco is
experiencing negative cash flows (Nyathi, et.al., 2018). It is not able to repay the debts from its
creditor due to its unavailability and they also took short term loans for repayment to its
stakeholders which eventually increases its interest charges. Obstruction of funds did not allow it
to declare good share of profit to its employees.
Adaptation of new accounting standards by Tesco i.e., IFRS16 Lease accounting adopted
in times of covid does not recognize types of lease separately it creates ambiguity in finding the
expenses are related to which category of lease. It becomes difficult to learn the new accounting
procedures for accountants and as they are working from home in pandemic so there will be less
scope for their training. On the other hand, adopting new accounting standards helps to cope up
with the existing new accounting tools and ease in filling return and marks statements of an
enterprise according to the pre decided standards (Tusekelege, 2020).
Increased liability of tax by government results in rising liability of Tesco, when tax
payment upturn majority of shareholders struggle from the same. Earnings after tax reduces so,
employees will get less share of profit. Profitability of company is tumbled but government is
benefited by receiving revenues which improves overall status of economy in the pandemic.
Expenses can be easily deductible from its profits like depreciation, interest charges etc.
Management of payroll and its accounting is necessary to keep record of compensation,
perquisites and allowances of employees. With the dynamic requirements of employee’s
software require many modifications but the persons who are handling data are not friendly with
those new enhanced technology as work from home lacks physical existence of employees at a
specific place whereas these changes made accounting of payroll more easy because it reduces
manpower and add new features to the current software (Youssef, et.al., 2020).
Recommendations
From the above information of Tesco company, challenges faced during pandemic in the
field of accounts and finance it can be recommended to the enterprise that it should create a
working environment which is capable to survive in the dynamic surroundings to achieve its
objectives. It should focus on the maintaining equilibrium between liquidity and profitability by
using mixed approach of aggressive and conservatism. Procurement of funds should not carry
high cost through which more funds are available for its daily working. Changing trends of
accounting should be followed by this company to gain ease in recording transactions and
analysing performance of the enterprise by which further decisions can be made, keeping in
mind all the deviations of the current action. Structure of tax is decided by government which is
not in the hands of company but investing to various schemes and composition of capital
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structure in such a way that the proportion of the debt is more as compared to equity because
debt is a deductible expense which decreases net tax payable. Accounting of payroll is necessary
for managing the database of the employees because employee’s turnover ratio should be low in
order to improve the efficiency of the organisation. Proper training should be provided to the one
who handles payroll accounting because every aspect or department should be properly
managed. Company should draw attention towards increasing its market share and investing in
those areas where returns are high to manage its increased tax payment. It should incur expenses
on training and development improves employee morale and they work with more zeal.
CONCLUSION
From the above report it can be concluded that covid-19 is a major global disease which
hurdles execution process and Tesco company is also facing shortcomings due to the pandemic
but following the above stated recommendations company can regain its lost profitability and
enhance its revenue by improving their focus on employees because they are the greatest asset of
the enterprise. By framing policies which work even in the constantly changing environment
helps to reduce cost of company and retain its existing employees as well. It faces many issues
and their reactions to respective problems gives them sight to monitor their weak points and
ponder again on the plans made.
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REFERENCES
Books and Journals
Bilal, K. and Ilyes, C., 2021. The Effect of Accounting Accruals on Real Earnings Management:
Evidence from the Algerian Companies. International Journal of Accounting, Finance
and Education, 2(1), pp.1-19.
Chauhan, G.S., 2019. Performance attribution of mutual funds in India: outperformance or mis‐
representation?. Accounting & Finance, 59, pp.383-409.
Flamholtz, E.G., Johanson, U. and Roslender, R., 2020. Reflections on the progress in
accounting for people and some observations on the prospects for a more successful
future. Accounting, Auditing & Accountability Journal.
Lei, L., Deng, Y. and Liu, D., 2020. Examining research topics with a dependency-based noun
phrase extraction method: a case in accounting. Library Hi Tech.
Nyathi, K.A., et.al., 2018. The role of accounting information in the success of small & medium
enterprises (SMEs) in Zimbabwe: A case of Harare. Journal of Business and
Management (DRJ-JBM), 1(1), pp.01-15.
Tusekelege, L., 2020. Creating Names for Accounting Firms in Accounting Profession: A Case
study of Julian & Associates Accounting Firm (Doctoral dissertation, Mzumbe
university).
Youssef, et.al., 2020. The mediating role of management control system characteristics in the
adoption of management accounting techniques. Pacific Accounting Review..
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