Issue link: https://maltatoday.uberflip.com/i/1229160
02.04.2020 8 OPINION George Mangion Covid-19: a Damocles sword poised over our heads George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island C omments about the Sars-Cov 2 vi- rus has now become mainstream and there is very little one can add to the stark fact that Mother nature seems to chastise us (once every 100 years) with a global pandemic. Obviously, for a tiny island which – during the past seven years was savour- ing the fruits of a balanced budget with a surplus and a low unemployment – there were never any fears that a calamity was on the horizon. We have been constant- ly assured that Malta was basking in the glow of a cloud with an enormous silver lining led by a team of hardworking poli- ticians in Castille. We were reminded, every day of the dwindling number of unemployed and the generosity of the latest budget which sprayed pennies from the Castille chest to increase welfare benefits, top up min- imum wage and reduce the number of families which annually fall in the pov- erty trap. It was "l-Aqwa Zmien" for all. On the seventh of March, the sad news about the epidemic started to hit the lo- cal headlines, albeit people in China and South Korean started feeling the pain much earlier. e penny dropped as this never-ending nightmare started to in- trude upon reality: there a great possibil- ity for a huge loss of lives. With alacrity came the message that the global economy was grinding to a halt. Humanity is faced with a worldwide business lockdown and possible reces- sion. Politicians across Europe have re- acted compellingly to put money on the table so as to help the unemployed and shore up businesses - particularly those of public interest. e seriousness of the matter can be gauged by reading circulars from ac- countancy bodies urging their members to consider the friability of clients when eventually reporting for the 2019 finan- cial results. Directors now have to ascer- tain if there is a risk that the respective entity will be facing a complete show- down of its activities. Accountants and auditors are expect- ed to be diligent when signing 2019 fi- nancials statements to comment on the appropriateness of the going concern assumption for the twelve months fol- lowing the period end - ie end of 2020. Based on this risk assessment, auditors are to weigh the probabilities of their client surviving the pandemic and or otherwise in a worst-case scenario, to ei- ther qualify the audit report or place an emphasis of matter, plus an inclusion of a key audit matter. Let us for a moment, examine the plight of the hotel and entertainment sector in Malta. Both have a huge workforce and saving jobs would also be critical from a socio-economic point of view. e mini budget is offering a monthly subsidy of €800 for a select group of firms which re- tain workers. is is pennies from heaven but given that the average pay of workers is €1,650, this means that employers have to meet the balance from their resources - not easy when rooms and bars are empty. ese conditions are further impacted by debt which the hospitality sector have on books for building and upgrading the hotels. Malta stands to lose out on an es- timated €3 billion in tourist expenditure due to the outbreak, which would send shockwaves through the entire economy since the loss of multiplier is enormous. Experts contend that as an optimistic forecast, the islands will not see tourist arrivals beginning to recover until De- cember. Pessimists forecast the tourism drought will stretch till summer of 2021. Both the hotel, restaurants and the man- ufacturing sectors are fearful that if not enough support is brought in quickly by the state they could find it difficult to sustain a comeback. As a gesture of goodwill, some hotels have started giving rooms to the admin- istration. is scheme is at a fixed cost for hundreds of persons who have been asked to be in self-quarantine by the ad- ministration for two weeks. Equally egal- itarian, is a call to property owners from the Ministry for Health to offer accom- modation to healthcare professionals 'free of charge' or at a reduced cost. Ideally, such accommodation will be temporarily used by professionals who opt not to return to their family home after work due to being exposed to Cov- id-19, so as not to put their families at risk. Be that as it may, the entire island is being cautioned to observe social dis- tancing and only venture out for work or urgent visits to hospitals, buying of es- sentials and to avoid crowds. With everyone stuck at home and be- hind their video devices, there's been an opening of the aperture for the digital content particularly for the thousand odd teachers/lecturers who are busy design- ing online papers for students cocooned at home. is is a new social phenome- non that shows the extent that teaching practice has changed and teachers must now quickly convert to using the digital media, something which came as a sud- den obligation. ousands of people/clients are staying connected, spreading both information and positivity through live, short, and long-form content, and it's been inspir- ing to see how the island has managed to cope. But the same cannot be said about the film industry. While more traditional mediums are feeling the acute impact of social dis- tancing – film and TV productions are being shut down and they do not qual- ify for the €800 monthly subsidy. In this time of struggle, there are leadership les- sons to be learned from bad situations, and strong leaders know that opportuni- ty and innovation lie at the heart of any disruption or dramatic change. When this crisis is over, many of the above-mentioned lessons might become standard business practice, so it's worth taking notes on the many insights how the pandemic has forced us to amend our lives. What was previously unthinkable in the workplace such as working from home, is now possible, and has highlight- ed the resilience of the human spirit. e silver lining is China. ere, people are back at work and nostalgically their daily life routines have returned as well. Even the travel ban in the Hubei province has been partially lifted. To conclude, the rosy picture is fine to kick-off with, as it proves that Covid-19 can be beaten, at least on the surface. For many individ- uals around the world, including inves- tors in the financial markets, it might be significant to view China as "cured", because it will initiate some hope about life in the future on the other side of the virus outbreak. is alone can restore a certain confi- dence among consumers, investors, etc. In the meantime, the Damocles sword has sadly fallen on China. Clients of the Chinese export companies are gone, which is confirmed by many Western companies, as they report a lot of can- celled orders. Concurrently, the economies in Europe and the US face a slowdown and some businesses might never open again.