COVID-19 – Impact on Accounting & Financial Reporting

COVID-19 has caused a world health pandemic and brought difficult consequences to our society. Because the scenario is dynamical apace, the unfold of the virus that had compact-bound industries ab initio is currently making sizable uncertainty for the planet economy and money markets. The extraordinary effort has been deployed to mitigate the flow-on implications brought on by this major world health risk.

The risks and implications of this scenario have created extra accounting and money consequences from a reportage perspective and people charged with governance have to be compelled to re-visit however these have an effect on their business.

We have summarised the key risks below:

Going concern

The current scenario could cause vital interruptions to business activities leading to a decline in sales, cash flow constraints, broken provide chains, ceased production or services, inability to retain key employees, inability to get finance, etc. for a few businesses, there could also be material uncertainty that casts vital doubt on the power to continue as a going concern. These businesses can have to be compelled to take into account revealing those material uncertainties within the money statements. The assessment of going concern should take into account events that have occurred once the tip of the money reportage amounts up to the date of the language of the report.

Events once the reportage amount

Events once the reportage amount is those events, favourable and unfavourable, that occur between the tip of the reportage amount and also the date once the money statements are authorised for issue. The 2 kinds of events are adjusting events and non-adjusting events.

For example, if the Dec 2019 year-end money report is nonetheless to be authorized, businesses and people charged with governance should assess the accessible info to choose whether or not changes or disclosures are needed before sign-off. Given the potential impact caused by COVID-19, some businesses could take into account there are events behind the balance date which will need associate degree adjustment to the money statements. These could embody provision for uncertain debts, provision for taxing contracts, and honest worth changes for non-recoverable investments or different assets. For different businesses sequent events could also be thought-about non-adjusting however need revealing of the character of the event, associate degree estimate of its money result, or {a statement|a press release|an associate degree announcement} that such an estimate can’t be created. This reveal ought to be clear and specific to the business.

Impairment of non-financial assets – property, plant and instrumentality, classifiable intangible assets, and goodwill

The implications brought on by COVID-19 might have a big impact on the performance and future cash flow of business assets. money reportage Standards need entities to think about any indicators that assets could also be impaired or whether or not the carrying quantity exceeds the recoverable quantity. Economy lockdowns, pause on production, dynamical trade associate degreed contract conditions would trigger an impairment assessment of assets added to the regular annual impairment take a look at.

Breach of loaning covenants

As the impact of COVID-19 is felt across the economy, the foremost loaning establishments have undertaken to supply their support to customers throughout this tough time. Though the chance of lenders works out penalty provisions has been reduced, it’s still essential to assess the money reportage impact of covenant breaches. It’s expected that borrowings would all be classified as ‘current’ within the money statements as businesses would don’t have any ability to defer reimbursement within the absence of any special clause in agreements.

Valuation of assets

The difficulty in maintaining property cash flow for several businesses established by this scenario has inevitably increased. This includes the power for patrons to pay debts after they fall due. This can little doubt end late or no payments from customers for an amount of your time. Businesses ought to permit enough provision for delinquencies and guarantee effective communication with customers to manage liquidity for the money viability of the business.

Valuation of inventories

Businesses are needed to report their inventory worth at the lower of price or web realizable worth (NRV). Businesses in operation in non-essential merchandise and repair industries that have knowledgeable vital reductions in sales ought to take into account whether or not the worth of their existing inventory has deteriorated and assess if any extra provision for devolution is needed.

Should future production volumes be affected, the inventory valuation model ought to even be revisited wherever mounted overheads are allocated to mirror this production volume.

Accounting for worker termination and business restructuring

Some businesses could also be forced to downsize or briefly shut their operations throughout this point of uncertainty. Provisions for any potential prices related to this restructuring have to be thought about besides applicable recognition of worker termination entitlements.

Delayed reportage, filings, and communications, as well as AGM’s

Many regulators have offered lodgement extensions and relief in supporting businesses experiencing difficulties meeting their obligations thanks to COVID-19. Management and people charged with governance ought to still observe updates or new developments and effectively communicate with their members and also the relevant regulator to make sure compliance.