2020 Articles - Suits the C-Suite - Page 4 | SGV & Co. | EY

02 June 2020

Christiane Joymiel Say-Mendoza, Pia Isabella Pagdanganan, and Meleusipo C. Fonollera

Transforming IA during the pandemic

The COVID-19 pandemic caught the world off guard, adversely affecting peoples’ lives and businesses on an unprecedented scale. According to the EY Global Risk Survey in 2020, four out of five of companies’ board members and CEOs across the globe said their businesses were not well-prepared to face the pandemic crisis head on. Companies have been employing various, often reactive actions, and even alternative methods to address the growing concerns impacting their businesses. These add pressure as they try to keep their business operations afloat. Furthermore, it has dramatically changed the risk landscape and given rise to new risk hot zones: Health, safety and mobility: The community transmission of the virus poses a huge health risk. This immensely affected the life and ways of working for customers, business owners and employees as their mobility becomes limited. Macroeconomics: The health crisis crippled the global economy. Supply chains across countries remain stressed, disrupting both demand and supply. Cybersecurity: The lockdown has forced people to work remotely and connect virtually. The spike in use of technology and cyberspace opens cracks for cybercriminals to hack, phish and even infect vulnerable IT networks and infrastructure. Compliance and stakeholder perception: The pandemic has caused governments to implement urgent measures and programs to fight the novel coronavirus, disrupting various industries. This event has further challenged companies to fulfill their obligation to issue fair disclosures to their stakeholders and maintain their societal brand and reputation. These disruptions open opportunities for the company’s Internal Audit (IA) function to play a pivotal role as companies are challenged to successfully steer a course towards survival and growth amidst the pandemic. IA can build trust by exhibiting reliability and continuing to be engaged as co-stewards of the company. It presents a real opportunity to collaborate with other business functions and enable company continuity. This can be achieved by being at the forefront of this pandemic through rapid assessments to identify focus risk areas; being agile in engaging and responding to stakeholder needs; and the continuous monitoring of the pandemic risks and impact on the company. ACTIVATING IA AS A TRUSTED BUSINESS ADVISOR IA is in a unique position as its experience allows it to assist in evaluating and managing internal and external business risks in the changing risk landscape. It can provide strategic business continuity advice, acting as consultants and crisis managers. It can start assessing business readiness on the new risk hot zones and potentially identify other risk areas. Results of the assessment can be used to further understand the current impact of the disruption, foresee upcoming impacts that the disruptions may bring about, and plan how to appropriately respond to ensure public safety, business continuity and social responsibility. LEVERAGING COLLABORATION TO DRIVE CHANGE IA is a key contributor in defining the necessary actions that key stakeholders should consider in addressing new threats as a result of the “new normal.” Constant communication is critical to keep key stakeholders aware of and aligned with plans despite the continuing uncertainty. IA can have more frequent, real-time discussions with the Audit Committee and Management to provide real-time advice on escalating risk focus areas, including critical action plans that they can consider taking. As governments apply strict social distancing guidelines and curtail travel, IA can assist businesses and provide advice on adjusting to a remote work environment, such as how usual controls can be executed or mitigating possible changes in roles. It is also a good opportunity to proactively engage and collaborate with external auditors to discuss the impact of the situation, especially for some procedures that may need to be performed differently due to limited face-to-face interaction. ADVANCING TECHNOLOGY TO ANTICIPATE EMERGING RISKS IA can implement a process supported by data analytics and technology to continuously monitor emerging risks. This will open avenues for key stakeholders to collaborate within various business functions. It will also be able to determine areas in their critical processes to stress-test and proactively identify resiliency plans and crisis protocols that can support sustainability of business functions. STEP CHANGE: NOW, NEXT AND BEYOND As companies slowly regain momentum to address the impact of the pandemic and prepare for their new normal, there is increasing pressure to reprioritize company resources and drive spending where it matters most. NOW IA as a function is called on to adapt to disruption by being more innovative and dynamic in its approach. There is a need to reassess audit priorities and expand the IA lens to clearly evaluate the impact of the pandemic on the organization’s financial, IT and operations risks. IA can invigorate decision-making as IA resources can be repurposed to directly support the business by providing real-time advice on crisis management, business continuity, cybersecurity issues, employee well-being, brand protection and working capital management. It is also a good opportunity for IA to proactively revisit control design changes and discuss internal control focus areas. In particular, key controls on processes such as inventory count or financial close may need to be performed remotely because of social distancing requirements, or in the event that the individual executing the control is ill for an extended period. NEXT Audit scope may shift focus to escalating risks such as data privacy and information security, liquidity and working capital, employee health and well-being, business resiliency and regulatory changes. As IA reprioritizes the audit plan, it needs to assess whether IA resources have the right skills, methodology and technology to enable them to execute its work. IA work can be continued, but with considerations on cost and the least disruption to the business. With the possibility of an extended economic downturn, more IA departments may face budget cuts. Hence, IA will need to find innovative solutions to enable them to do more with less. It may also consider performing analytics-based procedures which can be performed remotely, or leverage on third party IA service providers as subject matter experts for audits where IA either does not have expertise yet or are in locations currently restricted in lieu of on-site audit procedures. BEYOND Chief Audit Executives (CAEs) should continue to innovate their ways of working and interaction with key stakeholders. Short sprints and focused, real-time reports may replace traditional detailed reporting. Internal auditor requirements may also need revisiting as the need for data analysis and automation skills increases while on-site procedures decrease due to social distancing protocols. A flexible workforce structure can also be considered, such as the use of third-party resources, developing an offshore workforce and enabling business rotations to give access to the right subject matter skills at the right place and time. CAEs must examine their efforts to transform their organization through a new lens with renewed motivation and optimism. IA should continue to act in an advisory capacity to the business to address escalating and emerging risks upfront. As companies face difficult budget decisions, having an IA function that is viewed as a trusted business advisor is key in withstanding tightening budgets and workforce reductions. While there is no one-size-fits-all solution, CAEs as leaders can be catalysts for change in defining the new normal. The question is, in a world of uncertainty, will they just watch the events unfold or will they have the resilience to reimagine and reinvent the future? This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Partner Christiane Joymiel Say-Mendoza, Manager Pia Isabella Pagdanganan, and Manager Meleusipo C. Fonollera are from the Advisory Service Line of SGV & Co.

25 May 2020

Philip B. Casanova and Nathaniel F. Dizon

Stay safe! Cybersecurity during COVID-19

The COVID-19 pandemic has forced a majority of companies to promote work from home (WFH) arrangements. What used to be considered a benefit to improve employee work-life balance is now the new normal for most companies as a safety measure against coronavirus infection. While some companies have proven to be technologically well-equipped for WFH arrangements, unfortunately, many are also not ready. The ill-equipped are once again the targets of cyber threat actors. These insidious groups know very well the meaning of Winston Churchill’s words, “Never let a good crisis go to waste” and they will take advantage of the seemingly chaotic situation. They are even more active now due to three reasons: weakened corporate cybersecurity controls, taking advantage of FUD (Fear, Uncertainty and Doubt), and heightened use of technology. WEAKENED CORPORATE CYBERSECURITY Some companies are loosening, bypassing, or simply turning off cybersecurity controls in order to allow employees to access company systems while at home. They are turning off their secure remote network access controls (i.e., Virtual Private Networks and token authentication) because they only have a fraction of the licenses to accommodate the employees working from home or remote locations. In this scenario, the only protection the company has is a text password which could be eventually guessed by cyber threat actors. Critical security patches and updates may not be installed on employees’ computers in time, if at all. The deployment of these security patches is typically done from a central server in the company’s network. It’s easier to deploy the security patch in the office since the network speed is usually fast. However, in most cases, the security patch will be hard to deploy through the narrow bandwidth of the employee’s home Internet connection. This means that many of these unpatched company computers are left vulnerable to cyber threat actors while connected to the Internet. There will also be employees who will try to disable or bypass the company security controls in their laptops in order to install unauthorized software or access restricted websites. This action leads to inviting a wide range of malware to infect the computer (e.g., keyboard stroke loggers, audio/video recorder, or ransomware). TAKING ADVANTAGE OF FUD Cyber threat actors are also using the current atmosphere of Fear, Uncertainty, and Doubt for unjust monetary gain. They are using COVID-19 to target both people and companies with carefully crafted phishing messages. Many of the phishing campaigns currently in progress have frequently been related to groups specializing in ransomware attacks. The current crisis has led people to be more curious about the virus and what’s happening, especially in their communities. Sophisticated phishing emails and malicious websites now abound to exploit this knowing that somebody who wants to stay updated on the pandemic will eventually make that “click” and compromise his or her computer. HEIGHTENED USE OF TECHNOLOGY The use of technology and the Internet is unprecedented at this time. One can really just stay at home to purchase goods, pay bills, or watch a movie with just a few clicks. There is a rise in the usage of video conferencing and online banking systems. Almost immediately, new fake domains have been set up to mimic these systems. Moreover, malicious executable files were also quickly developed around these popular systems with the goal of making people install malware onto their devices to harvest usernames and passwords, among others. STAY SAFE! “Stay Safe” is now a common expression when ending a conversation. Similar to all the precautions that we take to keep the COVID-19 from infecting us, we must do the same for our technology. To help mitigate the risks, consider some recommendations from the article of EY’s Global Advisory Cybersecurity Leader, Kris Lovejoy, “Seven ways to keep ahead of cyber attackers during COVID-19.” 1. Understand your company’s remote connectivity and authentication capabilities. Be mindful of potential workarounds which employees might be using to do their work and keep in mind insecure use of these technologies is the easiest path for an attacker. 2. Assess and implement new security analytics models to account for privileged activity and use of new administrative tools and services (i.e., system administrator’s activities). 3. Review your current e-mail security controls and take into consideration current remote workforce conditions. Utilize current controls provided by your e-mail provider to the fullest before looking to purchase additional services or technologies. 4. Assess the current visibility of assets (i.e., computers) and network traffic to identify what has changed due to workforce relocation. 5. Update and test your incident response and disaster recovery plans to ensure they are applicable to the current state of your workforce. Update your external incident response provider and consider an additional external provider if a more appropriate response time is needed. 6. Test the ability to recover from your backups in a timely manner with a keen eye to ensuring that your organization is backing up all the data it needs in a format that is accessible yet secure to prevent both explicit or inadvertent tampering or corruption. 7. Review, update and recommunicate cybersecurity training to all employees. Ensure that the latest threats to your organization and employees are highlighted. The unprecedented scale of global disruption caused by the COVID-19 pandemic has wrought significant paradigm shifts in nearly every sector and aspect of society. However, companies that take decisive action to deal with the situation now, create contingencies for what happens next, and proactively plan for the world beyond the pandemic will have better chances to survive and thrive in the new normal. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Philip B. Casanova is an Advisory Partner and Nathaniel F. Dizon is a Manager of SGV & Co.

18 May 2020

Smith Lim

Short-term financial management for COVID-19

May 18, 2020COVID-19 is generating unprecedented levels of challenges in company ecosystems — including supply chains, customer demand, strategic planning and operations, and liquidity — alongside high levels of uncertainty and volatility. Given this, it has become more essential than ever for companies to focus on short-term financial management as part of their overall business continuity plans. This article discusses methods of short-term financial management, specifically (1) generating cash and protecting liquidity; (2) preserving working capital; and (3) creditor and debt management. GENERATING CASH AND PROTECTING LIQUIDITY To generate cash and protect liquidity, companies can look into cash reserves in subsidiaries and business units, as well as ways to repatriate said cash to areas of the business where it is most needed. Untapped loan facilities and other lines of credit are also options, but these require communication with lenders to confirm availability given these challenging times. Liquidating short-term securities and other non-essential assets can also be a source of cash. However, care must be taken as to which assets to sell, given the current all-time low in asset valuations. Government stimulus funds and moratoriums on payment of certain bills can also help companies stay afloat. Similarly, insurance claims specifically for business interruptions should be explored. However, given insurers’ recent experience with SARS and MERS, it should be noted that some insurance contracts may include specific exclusions on pandemics or epidemics. Even so, the cash generation exercise should not be short-lived, given the continuing uncertainty of the COVID-19 situation. Companies need to identify and sequence longer-term cash sources and maintain discipline to perform daily cash tracking, cash flow planning, and determining liquidity strategies. These longer-term cash sources can involve identifying alternative revenue sources for the company and looking at areas within the business where costs can be further optimized. PRESERVING WORKING CAPITAL Another area that needs to be managed is how to preserve the company’s working capital reserves. This requires looking into the three aspects of working capital: suppliers (payables), customers (receivables), and inventories. Delaying payments to suppliers is one possible way to manage working capital. However, care must be taken to distinguish which suppliers are considered essential and non-essential for business continuity. In the case of essential suppliers, open, clear, and transparent communication is key. Companies cannot unilaterally decide to delay all outstanding payments when such payments may make or break key supplier relationships in these challenging times and further worsen the state of an already troubled supply chain. For businesses that have healthy financials, the situation may present a potential opportunity to re-negotiate more favorable payment terms. Our present situation requires company customer relationship management teams to be more proactive with customers. One approach is for companies to offer discounts on receivables to accelerate payment. As with suppliers, this situation presents an opportunity to re-negotiate pricing and payment terms for existing contracts with customers while taking into consideration their respective financial health. It is crucial to establish better levels of communication with existing customers to establish stronger relationships and generate longer term value that benefits both parties. In the case of inventory, the general tendency is for companies to liquidate excess inventory to generate as much cash as possible. However, care should be taken given the uncertainty of the pandemic in terms of reliability of the supply chain. There may actually be a need to increase the amount of inventory at hand to decrease the risk of shortages and further damaging customer relationships. Companies will need to reassess their traditional assumptions on economic order quantity and optimal inventory levels, among others. CREDITOR AND DEBT MANAGEMENT In the wake of disruption brought about by COVID-19, company short and long-term cash flow forecasts will need to be taken into account and reassessed to determine the likelihood of breaching any debt covenants, as well as the potential inability to service debts as they come due. Scenario planning and analysis should be considered when forecasting said cash flows, while aggressive, base, and conservative (ABC) assumptions must be developed to take into account indeterminate factors. As an example, “aggressive” can assume fast recovery post-COVID (V-shaped), “base” can assume slower recovery post-COVID (U-shaped), and “conservative” can assume a prolonged impact of COVID (L-shaped). It will be best for companies to be proactive when it comes to discussions with lenders, who will especially appreciate transparency as key stakeholders in the business. Practicing transparency may even open doors to negotiating for better terms or even additional facilities. This is, of course, provided that the negotiating company can clearly prove that they have robust financial management plans in place, and have substantial, well-thought out assessments of how COVID-19 has impacted them. STAYING ONE STEP AHEAD COVID-19 continues to present unique challenges for companies today, dampening demand while simultaneously disrupting supply. Staying one step ahead and being proactive in short-term financial management as well as long-term value creation will allow companies to emerge stronger and wiser after this global crisis comes to pass. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Smith Lim is a Senior Director from the Transaction Advisory Services of SGV & Co.

11 May 2020

Maria Kathrina S. Macaisa

Strengthening today’s supply chains for tomorrow

Ever since the World Health Organization (WHO) declared the global COVID-19 outbreak a pandemic on March 11, nearly every country has been hard-pressed to contain the spread of the coronavirus. The global economic turmoil caused by the rapid spread of COVID-19 has significantly impacted businesses and industries — in particular, their supply chains. Many companies were shut down while others had to ramp up to deal with panic-buying of essential goods. Many companies struggled to read and plan for demand, with panic-buying and inadequate supply altering consumer buying behaviors and patterns. Manufacturers in Luzon also struggled to maintain staffing and output under social distancing and the enhanced community quarantine (ECQ) rules. Many enterprises experienced the disruption of their distribution and logistics due to the resulting lockdown. These conditions were experienced by all companies, from small third-tier suppliers to billion-dollar conglomerates, with the likelihood that many will not recover for years to come. The lockdown struck various industries, but not all to the same extent. Industries such as automotive, tourism, consumer goods, electronics and retail in particular have been profoundly affected by the ECQ. Car manufacturers, for example, had to shut down their factories due to their suppliers’ inability to deliver critical components. While there are efforts to revisit and identify new suppliers, preventive measures such as maintaining multi-tier relationships with vendors and alternative providers could have helped companies minimize the impact and maintain a minimal level of utilization or productivity in their manufacturing lines. The tourism sector was also severely affected with the government expecting roughly 30,000 to 60,000 jobs lost due to travel restrictions. Consumer goods firms, on the other hand, have had to modify their demand forecasting because prior sales history is no longer an effective predictor of future sales considering the abrupt market shift. Retail companies have also had to revisit their omnichannel strategy, as the demand shifts to online purchases from bricks and mortar stores which were shuttered by the lockdown, or, even if still open, affected by social distancing rules. Business leaders must take bold action to manage their supply chains, and they must realize that understanding and planning for disruption is more critical than ever. How business leaders combat the current disruption will have a direct follow-on effect on their companies’ performance. This challenges business leaders to provide well-thought-out and agile solutions for their current supply chain while avoiding any adverse impact on their future supply chain. Based on the developments from this pandemic, coupled with learnings from past disruptive events, this article lists key considerations to help companies build a resilient supply chain. END-TO-END SUPPLY CHAIN RISK ASSESSMENTS As companies address the new normal, proactive engagement and strategic partnerships with supply chain ecosystem partners are vital. Regular checks must identify changing demand and inventory levels to locate critical gaps in supply, production capacity, warehousing and transportation. These should then be further synthesized to create an outcome-driven resiliency strategy with the aim of efficiently and effectively leveraging additional networks within the pool of production and distribution networks of various suppliers. A real-time supply chain risk intelligence system should also be in place to provide early warning in case of potential and pervasive disruption to the supply chain. ROBUST RISK MANAGEMENT AND DIVERSIFIED SUPPLIER NETWORK Enterprises should map out supply chain networks from end consumers to tier-N suppliers. Firms should establish a methodology to measure risk for each supply chain node/arc-like channel, warehouse, factory, supplier, or transportation mode. DIGITAL AND AUTOMATED MANUFACTURING CAPABILITY Several manufacturers are now looking at leveraging automation and Internet of Things (IoT) solutions for smart manufacturing operations to mitigate reliance on labor-intensive processes. While companies in the Philippines tend to take advantage of low labor costs, manufacturers should balance labor and manufacturing productivity needs in case of disruption. A strong manufacturing excellence program enabled by digital technology can allow the standardization of daily work and job aids, relieving the pressure of relying on specific individuals to maintain operational performance. IoT capabilities can help foster a digital ecosystem of connected systems providing users with relevant and updated data to make the most informed decision at any given time. Automated manufacturing capabilities will also enable a company to run a manufacturing operation using interchangeable personnel while reducing labor requirements. EVALUATE AND ADJUST PROCUREMENT CATEGORY STRATEGIC PRIORITIES Procurement should be transformed into a value-generation function through timely reviews and adjustments to category strategic priorities, defining new business relationships with suppliers to meet the company’s overall supply chain objectives. An agile procurement operations system enabled by various technologies and factoring in category strategic priorities across variables such as cost, quality, delivery, innovation, etc. will also help drive resiliency. Companies can introduce digital procurement technologies to benefit from supplier social networks. Implementing such networks in sourcing and in supplier lifecycle management can strengthen sourcing capability and collaboration under challenging circumstances. MORE COLLABORATIVE AND AGILE PLANNING AND FULFILLMENT CAPABILITY The art-of-possible concept today in technologies that can bring more agility and collaboration within the enterprise as well as across business partners is endless. IoT devices for demand sensing and goods movement tracking to advanced forecasting solutions and social media demand behavior monitoring are heavily impacting how companies understand demand signals and how quickly they can react to them. These capabilities are extremely important for business performance even in normal business conditions and they increase the supply chain resilience during challenging events like the pandemic. BUILDING A RESILIENT SUPPLY CHAIN The pandemic has inevitably caused disruption in all sectors, with various degrees of impact. Through the chaos of recovery, it will be very easy to overlook the root causes and gaps within a supply chain that may have paralyzed businesses during this unprecedented global event. However, it is time for companies to rapidly assess, recover, and respond quickly through numerous obstacles and challenges that remain, as building towards a resilient supply chain will be at the epicenter of future discussions for years to come. This article is for general information only and is not a substitute for professional advice the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Maria Kathrina S. Macaisa is a Partner from the Performance Improvement Service Line of SGV & Co.

04 May 2020

Rosalie T. Lapuz

Annual reporting despite business interruptions

“Gradually and then suddenly” was how Ernest Hemingway described going bankrupt in The Sun Also Rises and the description seems to apply to the global response to COVID-19. The Securities and Exchange Commission’s (SEC) response also follows this pattern, making adjustments over a short period to address the effects of the Enhanced Community Quarantine (ECQ) on annual reporting. The SEC originally issued SEC Memorandum Circular No. 2 on Jan. 21, setting the period between April 20 and May 22 as the deadline for companies whose fiscal year ended on Dec. 31 to file their Annual Financial Statements (AFS). Companies whose fiscal year ends on a date other than Dec. 31 have a filing date of 120 calendar days from the end of their fiscal year. General Information Sheets (GISs), on the other hand, should be filed within 30 calendar days from the following dates based on the type of the corporation: a) Stock Corporations: date of actual annual stockholders’ meeting b) Non-Stock Corporations: date of actual annual members’ meeting c) Foreign Corporations: anniversary date of the issuance of the SEC License However, after the President declared a state of public health emergency, the SEC issued on March 12 SEC Memorandum Circular (MC) No. 5, Series of 2020 extending the filing of 2019 Annual Reports (ARs) as well as the applicable Quarterly Reports for 2020 and 2019 AFS. AR AND AFS DEADLINE EXTENSION Invoking its regulatory power under Sec. 5.1(g) of the Securities Regulation Code (SRC) and Sec. 179 (o) of the Revised Corporation Code (RCC), the SEC granted affected companies an extension, without penalty, to submit their ARs and/or AFS for the period ended Dec. 31. a) Companies with domestic operations only: until June 30 b) Companies with domestic and foreign operations: until June 30 or 60 days from the date of lifting of travel restrictions/ban by the authorities (whichever comes later). The extension is subject to the submission of a written request, confirmation and continuous observance of disclosure obligations for affected publicly-listed and non-publicly listed corporations. On March 18, two days following President Duterte’s ECQ declaration, the SEC issued a notice further relaxing the requirements for extension requests by dispensing with documents such as the sworn certification by the company’s President and Treasurer confirming that (1) its financial year-end is Dec. 31; (2) it has significant business operations or significant subsidiaries in areas/countries/territories affected by COVID-19, and (3) the preparation of AFS and timely completion of statutory audit of the company’s FS has been affected by travel restrictions, temporary suspension of business operations and/or measures imposed by the authorities or companies in response to COVID-19. The sworn certification by the company’s external auditor confirming 2 and 3 was also dispensed with. Instead, affected publicly listed corporations now need to submit the following requirements to avail of the extension: a) Upload SEC Form 17-LC (announced on April 8) via PSE Edge not later than five days before the regular filing deadline; b) Continuous observance of disclosure obligations under Republic Act No. 8799 or the Securities Regulation Code, and Philippine Stock Exchange’s Consolidated Listing and Disclosure Rules; and c) Indicative date to convene the Annual Stockholders’ Meeting. AR, AFS AND GIS FILING GUIDELINES Corporations whose preparation of financial statements or completion of statutory audits are not affected by the COVID-19 outbreak must file their ARs and/or AFS for the year ended 31 December 2019 within the periods prescribed under existing rules and regulations. Companies with fiscal years ending Nov. 30 also receive a similar extension. On March 18, the SEC issued SEC MC No. 09-2020, which provided the guidelines for the filing of the GIS during the COVID-19 outbreak and ECQ. a) If a company holds its Election of Directors, Trustees and Officers, the company must submit its GIS within 30 days from the actual meeting to designated channels. Companies are also required to submit printed copies within 30 calendar days from lifting of the ECQ. b) If the Annual Meeting and Election of Directors or Officers is not held due to COVID-19 health and safety reasons and the corporation has no remote communication facilities, the company reports the same to the SEC through a notice within 30 days from the original meeting date. The report should include a new date for election that is 60 days from the originally scheduled date. c) If the Annual Meeting of Election of Directors, Trustees or Officers is not held due to other causes, the company reports the same to the SEC within 30 days from the original meeting date, including a new date for election no later than 60 days from the originally scheduled date. d) If an election initially reported as not held due to COVID-19 precautionary reasons is verified as unrelated to COVID-19 upon application of a stockholder, member, director, or trustee, the same may nevertheless be considered as a non-holding of election due to other causes. e) If a company does not justify the non-holding of an election under the current circumstances, the SEC issues an order directing a notice stating the time and place of the election in accordance with Section 25 of the RCC. f) Companies will submit reports relating to the non-holding of annual meetings due to COVID-19 precautionary reasons and due to other causes to the SEC. g) Companies will report results of the election of directors, trustees, or officers subsequent to the report of non-holding of an election meeting for COVID-19 reasons and other causes, and which is held outside the covered period, to the SEC through a GIS submission within 30 days from the date of the actual election meeting. The GIS submitted pursuant to this paragraph is subject to penalty. In addition, in MC No. 10-2020 issued March 20, the SEC allowed the filing of the AFS, GIS and other general and special forms and letters through e-mail as long as the documents are in PDF format with electronic signatures. These e-mails must be sent as MIME (Multipurpose Internet Mail Extensions) from a valid company e-mail account or address of an authorized representative and include a declaration of authenticity, a commitment to submit physical copies after the ECQ is lifted, and a request for Return Receipt and Delivery Status Notification. The AFS and GIS may not be notarized. E-mails sent between 8 a.m. to 5 p.m. on a regular workday shall be considered filed within the day they were sent. ADAPTING TO UNCERTAIN TIMES After SEC MC No. 09-2020 comes into force, and upon evaluation of ongoing developments relative to COVID-19 and the ECQ, the SEC may further extend the covered period provided as deemed necessary. Given the current challenging business conditions, the SEC has proven its ability to take timely and decisive action to help businesses cope with their reportorial obligations. Companies, organizations and other regulatory groups that wish to survive and quickly recover after the pandemic would do well to also take purposeful steps of their own, not gradually and suddenly but with a sense of urgency and resoluteness. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Rosalie T. Lapuz is a Senior Director from the Business Tax Services Service Line of SGV & Co.

27 April 2020

Editha Viray-Estacio

Is your business COVID-19 resilient?

The World Health Organization (WHO) has declared COVID-19 a public health emergency of international scale, impacting governments and businesses alike with unprecedented disruption and risks. Companies continue to feel the business and financial shocks caused by the pandemic. COVID-19 has become a black swan event, unpredictable and with potentially severe consequences. As companies navigate the COVID-19 crisis, there are a number of key issues corporate leaders should be thinking about, as well as steps they can take to reshape their business and plan for recovery. Global companies have to be predictive and proactive in their decision-making to preserve continuity and build resilience. As global companies grapple with an ongoing and evolving situation, we have identified five priorities for them to consider. PRIORITIZE PEOPLE SAFETY AND CONTINUOUS ENGAGEMENT Ensuring the safety and well-being of employees in the workplace is essential. People look to their employer, community and government leaders for guidance. Addressing their concerns in an open and transparent manner will go a long way towards engaging them and reassuring them of business continuity. One of the adjustments companies have to make is to initiate or expand flexible work arrangements and other policies that allow people to work remotely and safely. Depending on the sector, companies will want to reorganize teams and reallocate resources. Additionally, companies will want to produce regular communications that align with current government and health authorities’ policies to help employees remain engaged as they and the organization navigate through the crisis. Finding ways to reimagine a business-as-usual environment that minimizes disruptions for the organization requires a fine balance. Where telecommuting or flexible work arrangements aren’t possible and companies must have workers on site or in direct contact with customers, it is important to provide measures to protect against infection. RESHAPE STRATEGY FOR BUSINESS CONTINUITY As mentioned, almost all businesses are likely to experience significant disruption to their business-as-usual operations and will experience underperformance throughout the duration of the COVID-19 crisis. This is especially true for companies that either operate in or are exposed to countries with significant outbreaks of the coronavirus. These companies will experience disruption to their supply chain and production commitments. To help address these challenges, companies must: Evaluate short-term liquidity. Companies have to instill short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner. They will need to maintain strict discipline on working capital, particularly around collecting receivables and managing inventory build-up. Additionally, it will be important to be creative and proactively intervene to lighten the working capital cycle. Assess financial and operational risks and respond quickly. Companies will need to monitor direct cost escalations and their impact on overall product margins, intervening and renegotiating new terms where necessary. Just as companies need to monitor their in-house vulnerabilities, they also will need to monitor the pressures that may be impacting some of their customers, suppliers, contractors or alliance partners. Finally, they need to be aware of covenant breaches with banking facilities and other financial institutions relating to impairment risks in asset values, which may impact the health of the overall balance sheet. Consider alternative supply chain options. Companies that source parts or materials from suppliers in areas significantly impacted by COVID-19 must look for alternatives. Such quick moves will create the temporary capacity to meet customer obligations. Companies that have arrangements with agile manufacturing facilities to make spot buying decisions — or have loose contractual arrangements with various service providers and logistics providers — should consider the initial disruption as well as post-crisis scenarios given the potential for demand spikes. Determine how the COVID-19 crisis affects budgets and business plans. Companies will want to stress-test financial plans for multiple scenarios to understand the potential impact on financial performance and assess how long the impact may continue. Based on the outcome of the assessment, companies may need to look at near-term capital raising, debt refinancing or additional credit support from banks or investors, or policy supports from the government. At the same time, companies will need to review overall operating costs and consider either slowing down or curtailing all non-essential expenses. COMMUNICATE WITH RELEVANT STAKEHOLDERS Clear, transparent and timely communications are necessary when creating a platform to reshape the business and secure ongoing support from customers, employees, suppliers, creditors, investors and regulatory authorities. • Customers. Keep customers apprised of the impact on product or service delivery. If contractual obligations cannot be met as a result of supplier or production disruption, it is important to maintain open lines of communication to revisit timelines or invoke “force majeure” or “act of God” clauses. Such proactive action will help to mitigate punitive damages or liabilities associated with disrupted customer obligations. • Employees. Find the balance between cautioning your people and maintaining a business-as-usual mindset when communicating with employees. • Suppliers. Maintain regular contact with suppliers regarding their ability to deliver goods and services and their own recovery plans. This helps enable the company to consider alternative supply chain options in a timely manner. • Creditors and investors. Review terms and conditions on loan contracts to identify and avoid vital technical debt breaches. These reviews will have the added benefit of giving companies a chance to proactively manage the dialogue and communications with creditors regarding any necessary amendments to existing terms or refinancing arrangements. • Government and regulators. Consult with legal and risk management teams for advice on potential exposures. MAXIMIZE THE USE OF GOVERNMENT SUPPORT POLICIES Companies should monitor government and organizational opportunities for support and how they may best serve the individual circumstances of their organization. For instance, the Department of Labor and Employment (DoLE) has said that a P1.3-billion financial assistance program will be given for workers affected by the enhanced community quarantine in Luzon. Under the COVID-19 Adjustment Measures Program, each worker will receive P5,000 in cash to be processed through the companies’ payroll system. Companies should monitor the availability of these kinds of programs and use them to mitigate the risks they face. BUILD RESILIENCE IN PREPARATION FOR THE NEW NORMAL Once companies have solidified strategies based on stress tests and communicated any new directions with relevant stakeholders, they will need to execute revised plans while monitoring what continues to be a fluid situation. Senior management should report any material deviation from the plan in a timely manner so that their companies can take additional action to avoid further negative impact. Once the COVID-19 pandemic is controlled, companies will want to review and assess business continuity plans. If there are deficiencies, identify root causes, whether it’s timeliness of action, a lack of infrastructure, labor shortages, or external environment issues. Companies will then want to consider putting new internal guidelines in place based on lessons learned, as well as solid contingency plans to build resilience and better respond to future crises. WHAT COMES NEXT? As a black swan event, the COVID-19 crisis is impossible to predict. However, there are many lessons companies can learn and carry forward once the crisis has passed and a chance is provided to analyze their response. In the meantime, companies should be making decisions and taking action during this crisis with recovery in mind. When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business strategy to thrive in the future. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Editha Viray-Estacio is a Partner from the Transaction Advisory Services of SGV & Co.

20 April 2020

Marie Stephanie C. Tan-Hamed

Testing your capital agenda amid COVID-19

We are currently in an unprecedented global crisis, and every country is struggling to deal with outbreaks of COVID-19 in their respective jurisdictions. Luzon is still in the midst of an enhanced community quarantine with other parts of the country rapidly following suit. We are faced with rising COVID-19-positive cases with our frontliners and health care system being pushed to the limits. The pandemic has brought massive disruption to our daily lives and livelihoods; businesses are being shaken all around the world. The pandemic-related disruption presents different and more complex challenges compared to typical business disruptions in the dimensions of scale, velocity, duration, workforce shortage, external coordination and infrastructure availability. As private companies continue to grapple with the evolving situation, they have to be proactive and predictive in their decision-making to preserve continuity and build resilience. It is more imperative now to test the companies’ commitment to their Capital Agenda. Our EY Capital Agenda framework presents COVID-19 considerations for companies to consider in today’s current business predicament. INVESTING — BUY AND INTEGRATE If you are in the middle of an acquisition: a. Consider the impact on the closure process — should you close early or postpone the acquisition? b. Ask for further scenarios that stress test the original assumptions underlying the maintainable earnings, cash flows and cost implications. c. Revisit the robustness of your supply chain set up, working capital and short-term liquidity risks. d. Reconsider the overall synergies and your other exposures. If you are in the middle of a major capital program: a. Revisit the feasibility of the entire project; b. Revisit the revenue, cost estimates, and project timelines; c. Review any delay exposures, liquidity damages and mitigation options. Look for new business models and emerging investment opportunities. DIVESTING — SELL AND SEPARATE If you are in the middle of a divestment: a. Assess the impact on the forecast cash flows, working capital, profitability and balance sheet of the business to be sold. b. Assess the robustness of the supply chain set-up. c. Assess the timing of the sale, the impact on the potential buyers, and pricing expectations. d. Increase the frequency of reporting the overall results, risks and mitigating factors through data and smart analytics to the potential buyers. If you are in the middle of a fund-raising exercise: a. Reconsider the pricing and timing of the transaction, especially if it is through public markets. b. Reconsider the purpose, timing and deal terms. c. Explore alternative options. If the business is significantly impacted, then management will need to assess the company’s short-term liquidity needs and funding options. OPTIMIZING — CORPORATE FINANCE Review the supply chain resilience: a. Consider inventory levels for critical components. b. Anticipate possible supplier disruptions and consider alternatives. c. If multi-sourced, optimize production and logistics locations from impacted cities to alternative locations. Scenario plan for short-term and medium-term recovery cycles. Explore synergies across your business portfolio by leveraging common customers, suppliers and financing sources. Explore restructuring options for the capital base — e.g. share buybacks, debt restructuring. Explore cost/financing mitigation options embedded in existing contracts, insurance arrangements and government incentive programs. PRESERVING — RESHAPING AND RESTRUCTURING Consider employee well-being, communication and continuous engagement. Prepare for multiple scenarios with staged action plans for prolonged employee and customer commitment, and supply chain disruptions. Set up short-term cash flow monitoring; scenario plan for short and medium-term disruptions to the business and assess your cash flow needs. Assess working capital management measures; proactively plan and intervene to prevent inventory build-up and collection challenges for receivables. Immediate implementation of cost savings and profit improvement plans. Review the impairment risk of assets; anticipate any potential breach of financial covenants. Undertake deep supply chain risk assessments. Anticipating, planning and forecasting for business disruptions are already complex and difficult exercises, but companies traditionally have past experience, conventional wisdom and corporate finance tools to guide them. However, in this unprecedented crisis, it may prove impossible to some. Despite the challenges, however, companies need to take stock of their current business models, plan for recovery, and prepare for a new normal once the pandemic has been contained and, eventually beaten. After this crisis is over, those who will emerge are those companies that are resilient and agile enough to reshape their business models as they prepare for a post-COVID 19 world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms. Marie Stephanie C. Tan-Hamed is a Transaction Advisory Partner of SGV & Co.

13 April 2020

Noel Andro D. Bico

Tax breaks in these trying times

As we discussed in the first part of this article, the tax system in the Philippines has been significantly affected by the strict implementation of the enhanced community quarantine (ECQ) and social distancing measures imposed by the Government to address the COVID-19 crisis. With the extension of deadlines for 2019 annual income tax returns (ITRs) and other tax filings, the Bureau of Internal Revenue (BIR) also relaxed the deadlines for other tax reportorial requirements. The BIR also introduced and implemented new policies to ensure continuous operations and for duties to be fulfilled despite the ECQ and in the spirit of service to the community. More recently, Finance Secretary Carlos G. Dominguez III, with the recommendation of BIR Commissioner Caesar R. Dulay, promulgated Revenue Regulations (RR) No. 7-2020, implementing Section 4 (z) of Republic Act (RA) No. 11469, otherwise known as the Bayanihan to Heal as One Act, particularly on the extension of statutory deadlines and timelines for the filing and submission of any document and the payment of taxes. Note that the deadline extensions mentioned in the first part of this article are consistent with the recently issued RR except for the following: • The required submission of attachments to e-filed annual ITR was moved to June 1 • The provision qualifying the application of the tax filing extensions to certain jurisdiction was not mentioned In the second part of this article, we discuss these additional BIR initiatives during the ECQ. FILING AND SUBMISSION OF TAX ASSESSMENT CORRESPONDENCE: In view of the suspension of offices under the Executive Branch, the BIR issued Revenue Memorandum Circular (RMC) No. 31-2020 on March 23 that gives taxpayers 30 days from the date of the lifting of the ECQ to submit the following documents: • Letter Answer to Notice of Informal Conference (NIC) • Response to the Preliminary Assessment Notice (PAN), Protest Letter to Final Assessment Notice (FAN)/Formal Letter of Demand (FLD) • Submission of relevant supporting documents to support the requirements for re-investigation of audit cases with FAN/FLD • Appeal/Request for Reconsideration to the Commissioner on the Final Decision on Disputed Assessment (FDDA) and other similar letters and correspondences with due dates The extension applies to taxpayers whose response to the revised NIC, PAN, FAN, FLD, FDDA, and other similar notices fall due within the ECQ period. The extension also applies to other jurisdictions where concerned Local Government Units (LGUs) have adopted and implemented the ECQ measures. We should note that the deadline extension is consistent with RR No. 7-2020. However, it does not provide for any qualification on the jurisdictions to which such extension shall apply. Consequently, target collection from covered tax assessments by the concerned jurisdictions may be delayed, potentially adding to the expected shortfall in tax collections from 2019 annual income tax filings. FILING OF CERTIFICATE OF RESIDENCE FOR TAX TREATY RELIEF (CORTT) FORMS: A deadline extension was also given to parties concerned with the filing of the CORTT Form through the issuance of RMC No. 32-2020, dated March 20, and RR No. 7-2020. As a brief background, on March 28, the BIR issued Revenue Memorandum Order (RMO) No. 8-2017 to modify the procedure for availing of tax treaty benefits on the payments of dividends, interest, and royalties to non-residents. It provides that, in lieu of the tax treaty relief application (TTRA) required by RMO No.72-2010, preferential treaty rates for dividends, interests and royalties shall be applied and used outright. Under the procedure, non-residents claiming tax treaty relief shall submit a duly accomplished CORTT Form to the International Tax Division (ITAD) and Revenue District Office (RDO) within 30 days after payment of withholding taxes due on the dividend, interest and royalty income of non-residents based on the applicable tax treaty. Previously, the filing of COURT Forms for final withholding taxes on said income types paid on or before March 10 were to be made on or before April 13. This has been extended to April 30 without penalty. AVAILING TAX AMNESTY ON DELINQUENCY: Also extended is the period to avail of the tax amnesty on delinquency covering the taxable year 2017 and prior years. President Duterte signed Republic Act (RA) No. 11213, which includes the Tax Amnesty on Delinquency. The BIR then issued Revenue Regulations (RR) No. 4-2019 to implement the rules on tax amnesty on delinquency effective April 24, 2019.ÊThe provisions of RR No. 4-2019 were further amended by RR No. 5-2020, particularly on the duration that it may be availed of given current conditions. Most recently, the BIR issued RMC No. 33-2020 dated March 24, extending the deadline on availing of tax amnesty on delinquencies under RR 4-2019, as amended by RR No. 5-2020, to May 23.ÊSuch extension was also consistent with RR No. 7-2020. ACCEPTING TAX RETURNS: The BIR implemented policies in relation to accepting 2019 annual ITR and other tax returns with due dates that fall within the ECQ. On March 23, the BIR issued Bank Bulletin No. 2020-03 to reiterate the relevant responsibilities of authorized agent banks (AABs) in connection with the “file and pay anywhere” rule provided by the BIR under RMC No. 28-2020 to ease the process of filing and paying the 2019 annual ITR. It authorizes all AABs to accept payments of 2019 annual income tax until May 15 without imposing penalties. The same 30-day extension applies to payments of tax returns with due dates that fall within the ECQ, including out-of-district returns. LGU INITIATIVES: Certain LGU offices in the National Capital Region announced the deadline extension for real property taxes and other local business taxes. Hopefully, other LGUs nationwide will follow suit. WHAT TO EXPECT: With the rising number of positive COVID-19 cases in the country, government may become more stringent in implementing ECQ measures. Despite this, the tax authorities are doing their share to help ease the burden on taxpayers. We cannot tell where this pandemic will take us or when it will inevitably end. What we do know is that in the middle of this uncertainty, we are all reminded of one enduring Filipino value — solidarity. Given the very limited options that taxpayers have during the ECQ, one of our best expressions of solidarity would be to comply with our tax obligations that will provide the government with the much-needed resources to overcome this adversity and for the good of the nation. The deadlines and timelines mentioned in this article are pursuant to the Author’s understanding of the existing administrative issuances of the BIR as of the date of writing. These may be subject to change in light of the recently passed RA No. 11469 or the Bayanihan to Heal as One Act, which authorizes the President to move statutory deadlines and timelines for the submission of documents and payment of taxes, fees, and other charges required by law, among others. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms. EYG no. 001665-20Gbl Noel Andro D. Bico is a Senior Associate from the Global Compliance & Reporting Sub-Service Line of SGV & Co.

31 March 2020

Noel Andro D. Bico

Tax breaks in these trying times

The government has announced several measures to contain the spread of COVID-19. President Rodrigo R. Duterte has placed Luzon under enhanced community quarantine and imposed stringent social distancing measures, with the entire country under a state of emergency. With the goal of protecting the health and safety of all taxpayers from the further spread of COVID-19, the Bureau of Internal Revenue (BIR) issued specific guidelines/circulars to be observed during the quarantine period. In Revenue Memorandum Circular (RMC) No. 25-2020 dated March 16, the BIR originally maintained its position that no extension of deadline shall be provided for the filing of 2019 annual income tax return (ITR) despite the quarantine being strictly implemented. However, considering the limitations in preparing the annual ITR and possible errors in determining the income tax due, taxpayers can amend the annual ITR filed, provided the concerned taxable period has not yet been subject to an audit. The additional income tax liability resulting from any amendment is to be paid without penalties if paid on or before June 15. The same circular also encouraged taxpayers, even those not required, to use the electronic filing facilities of the BIR (e.g., the electronic filing and payment system [eFPS] and eBIR Form Facility) to limit taxpayers’ movements and possible exposure to the virus. However, various stakeholders and associations raised concerns that the measures being implemented by the national government will have a significant impact on meeting the existing tax, accounting and auditing requirements. There may be delays in auditing the balances of companies and businesses due to, among others, fieldwork or meetings suspended and the work from home scheme enforced. ITR DEADLINE EXTENSION Fortunately, the BIR issued RMC No. 28-2020 dated March 18, amending RMC No. 25-2020. This amendment extends the filing deadline of the 2019 annual ITR and payment of the tax originally due on April 15 to May 15, without the imposition of penalties. Under this circular, taxpayers may file and pay the corresponding taxes due at any Authorized Agent Banks (AABs) nearest to the location of the taxpayer or to any Revenue Collection Officer (RCO) under the Revenue District Office (RDO). In other words, taxpayers may file and pay at their most convenient location. According to the press release of the Department of Finance (DoF), these emergency measures are offered to provide relief to taxpayers who will not be able to prepare, let alone file, the necessary ITR documents on or before the original annual deadline of April 15 because of minimal-staffing arrangements and enhanced community quarantine rules. In addition, the DoF estimated a shortfall in tax collections of around P145 billion, for which the national government may have to make up for with additional borrowing. Hence, the BIR urges taxpayers who are ready and able to file their ITRs to do so on or before the original deadline. DEADLINE EXTENSION FOR TAX RETURNS AND ATTACHMENTS The BIR likewise provided deadline extensions for other tax filings. On March 19, BIR Commissioner Caesar Dulay issued RMC No. 29-2020, amending RMC No. 26-2020 by extending the deadlines (by approximately one month) for the filing of various returns and payment of taxes due. Consequently, the BIR collection of taxes related to such tax filings may be delayed by approximately one month. The provisions of RMC No. 28-2020 (extension of deadline for filing of annual ITR and payment of the related income tax due) and RMC No. 29-2020 (extension of deadlines for filing of various returns and payment of related taxes due thereon) were further amended and clarified by RMC No. 30-2020 dated March 23. Under this circular, the required attachments for the filing of annual ITR are to be submitted on or before May 15. Moreover, deadlines were extended for other reportorial requirement submissions and one-time transaction (ONETT) payments. In general, a 30-day extension will be granted in case the deadline falls within the quarantine period. RMC No. 30-2020 also provided clarity by addressing inadvertent errors on the due dates in the filing of certain tax returns and payment of the related tax due thereon under RMC No. 29-2020. We should note that the BIR qualifies the application of the circular to Luzon, including the National Capital Region (NCR), which are under enhanced community quarantine and/or similar measures, and to other jurisdictions where Local Government Units have also adopted such measures. VAT REFUND APPLICATION EXTENSION Aside from the deadline extensions of these various tax returns and attachments, the BIR also extended the deadline for the filing of Value Added Tax (VAT) refund applications and the 90-day processing period through the issuance of RMC No. 27-2020 dated March 18. This allows the filing of VAT refund applications covering the quarter ended March 31, 2018 to still be accepted until April 30, 2020. The original deadline was March 31, this year. The 90-day processing period is also suspended for VAT refund claims that are currently being evaluated and those that may be received from March 16 to April 14. The counting of the number of processing days will resume after the enhanced community quarantine is lifted. CONDUCTING FIELD OPERATIONS Similarly affected is the conduct of audit/investigation/other field operations by revenue officials and employees. In relation to this, Deputy Commissioner (Operations Group) Arnel SD. Guballa, issued Operations Memorandum No. 20-2020 dated March 17. Under this memorandum, Revenue Officers will continue to work on their assigned cases, whether prescribing or not, based on the documents previously submitted by the taxpayers to the BIR and other information available to the Bureau. Officers are encouraged to work from home but without sacrificing the security of the data and information being handled. Non-prescribing audit cases which are still lacking documentary evidence were given a 30-day extension for the submission of the report of investigation. In addition, field audit/investigation, any form of business visitation or any field operations have been suspended. Likewise, personal service of electronic Letters of Authority (eLAs), Notice of Informal Conference, Discrepancy Notices or Missions Orders have been temporarily shut down during the quarantine period. Should a taxpayer appear in the BIR office to submit documents, such documents are to be received without delay and without further verbal discussion with the taxpayer in order to limit contact and maintain social distancing. In summary, the extended deadlines are as follows: • ITR filing — May 15 • Tax returns & attachments — May 15 • Additional tax liabilities — 30-day extension • VAT refund applications — April 30 • Non-prescribing audit cases lacking documentary evidence — 30-day extension FACING THE CHALLENGES While the government endeavors to address every Filipino’s need for basic services, health and safety, it is imperative that we as taxpayers likewise fulfill our duties and obligations as citizens. In our current situation, the maxim that taxes are the lifeblood of the country has never been more apt. However, life — and taxes, as the main source of government resources — must go on. Without taxes, government agencies cannot continue to operate. Hence, the need to collect taxes must necessarily be balanced against other interests. The deadlines and timelines mentioned in this article are pursuant to the author’s understanding of the administrative issuances of the BIR as of the date of writing. These may be subject to change in light of the recently passed RA No. 11469 or the “Bayanihan to Heal as One Act,” which authorizes the President to move statutory deadlines and timelines for the submission of documents and payment of taxes, fees, and other charges required by law, among others. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms. EYG no. 001498-20Gbl Noel Andro D. Bico is a Senior Associate from the Global Compliance & Reporting Sub-Service Line of SGV & Co.

25 March 2020

Conrad Allan M. Alviz

Are you ready for the data-driven digital era?

Digital technologies offer new opportunities to create value by leveraging data captured while companies carry out business as usual. However, while most companies embark on data-driven digital transformation, many still struggle to 1) determine the right data strategy that allows them to become a truly data-driven organization and 2) properly manage and govern their data. In fact, data management and governance ranked as the second top IT challenge identified by business tech leaders after IT security and privacy. As data increases in scale and complexity, some organizations remain fragmented and still work in silos to collect, transfer, process, analyze and store their growing data. Many companies cannot adapt to these changes and find themselves stuck in the archaic way of managing data. As companies work to innovate and go digital, management must strike a balance between the need to implement information security mechanisms and effective data management, including but not limited to data quality, data governance and data protection. Based on research, consumers of data spend 80% of their time looking for and cleansing data, and only spend 20% of their time analyzing and transforming data into valuable information to drive sound decision-making. This highlights the need for companies to reassess their data management strategy as well as their governance structure to better manage their data. Initiating data management and governance can seem daunting, considering how these cannot be confined to one corner of an organization. They can only be effectively managed through collaborative efforts between business departments and IT. Companies also need to govern their data environment regardless of the type of data and where it resides. A sound data management and governance program helps an organization achieve its desired targets over time to support its business objectives, while upholding data integrity and consistency accelerates the deployment of business activities and can reduce the cost of owning data. With this, companies should start by looking at their data sources and make sure that there are sound strategies and robust policies in place to protect the integrity of their data. There are many reasons why data management and governance programs fail, or at least, underperform. A company’s data governance strategy and policies may not be established nor well-defined, or data management itself is either viewed as an academic exercise or treated like a finite project. Executives may also isolate data as an “IT issue,” leading to business units and IT not working together to manage data in a structured and repeatable manner. It’s possible that the company’s unique culture is not taken into account, or that company personnel are already overloaded and can no longer handle governance activities. To revisit their data management strategy and governance mechanisms, companies can take the following items into consideration. ALIGNING DATA GOVERNANCE STRATEGY Companies must first define what data management and governance mean to their business. There should be a clear understanding of their business goals, since these will drive the company’s data strategy and scope. The scope is then defined based on priorities and the level of governance that fits the company culture. Establishing data governance will impact the whole organization. Placing strong focus on the company’s change management and communications approach is vital for successfully implementing and sustaining a data governance strategy. Everyone in the organization needs to understand the purpose of treating data as a strategic asset as well as their role in this shift. Lack of ownership can be a very challenging issue, especially during the early stages of implementation. Companies should also formalize their data governance committee and clearly define roles and responsibilities while ensuring that the responsibility does not rest solely on IT. Since data governance requires the collaboration of the entire organization, management support is the most significant component when starting a governance program. ESTABLISHING FORMAL DATA GOVERNANCE POLICIES Policies intend to establish ground rules that must be followed within the organization. They should enable the right people and the right steps to be taken at the right time. Data must be managed as an important asset of every organization. Formal accountability should be put in place while compliance is ensured with the relevant regulations, especially on data privacy and security. Data quality must also be consistently managed across the entire data life cycle. Management should establish a periodic review and approval cycle to ensure that data governance policies stay relevant and responsive to the fast-changing business landscape. Proper key performance indicators (KPIs) must be agreed upon and put in place when the data strategy is implemented. PROFILING YOUR DATA AND COMPLETING A DATA CATALOGUE A company should be aware of what data it has on hand, making it imperative to establish a data catalogue which becomes the heart of the data governance framework. As a living document, the data catalogue is subject to changes to accommodate the organizational (business and technology) landscape. Companies must know where they use their data as well as why it captures, stores and uses the data. A data catalogue should help entities define their data, identify data owners and a data custodian to establish accountability, and define data quality measures to ensure data integrity, confidentiality and availability. This allows management to rely on a single source of truth to support their decision-making. SELECTING THE APPROPRIATE TECHNOLOGY There are several technologies available that can provide visualization of the quality of data that a company decides to master. This can be achieved by utilizing efficient design technology that provides accessibility and the seamless integration of data across all systems. It should also be noted that in selecting a design solution, cybersecurity is a key area of consideration. Establish checks and balances to monitor data quality on a regular basis, the frequency of which depends on the required availability of top critical data elements. One way to achieve this is to implement audits and to monitor KPIs, as well as to continuously evaluate and improve the company’s data governance program. UTILIZING A VALUABLE RESOURCE Companies can no longer ignore data as a resource nor overlook its management to properly maximize its value. As companies continue to become more data-driven, their success will ultimately depend on their ability to manage and utilize a coherent view of their data. Better data — and a clearer view of what that data means — can give valuable insights that ultimately allow companies to make well-informed decisions in the face of change and growth. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Conrad Allan M. Alviz is a Senior Director from the Advisory Service Line of SGV & Co.

2020

Transforming IA during the pandemic

Stay safe! Cybersecurity during COVID-19

Short-term financial management for COVID-19

Strengthening today’s supply chains for tomorrow

Annual reporting despite business interruptions

Is your business COVID-19 resilient?

Testing your capital agenda amid COVID-19

Tax breaks in these trying times

Tax breaks in these trying times

Are you ready for the data-driven digital era?

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