outbreak of COVID-19 affected Financial reporting- Part 2

  1. Property, Plant, and instrumentality (PPE) and Impairment therefrom

Many entities would possibly face a tangle of underutilization/nonutilization of PPE thanks to low demand for his or her merchandise and services, closure of the assembly units because of the internment, thereby poignant the expected helpful life and therefore the residual worth of those assets. Hence, the management must review the estimate of the helpful life and residual worth and changes, if any, got to be accounted for in accordance with IAS eight – Accounting Policies, Changes in Accounting Estimates and Errors.

Impairment is also triggered thanks to the modified circumstances requiring AN impairment take a look at as per IAS thirty-six – Impairment of Assets. several entities would possibly face challenges in estimating future money flows thanks to economic uncertainties. Disclosures got to be provided as per IAS thirty six relating to risks related to assumptions and sensitivities used for predicting future profits within the calculable recovery quantity.

In respect of goodwill, there could be important changes with AN adverse impact in operations of a cash-generating unit to that goodwill is allotted, and thus, testing the impairment of goodwill wants special attention as of 31 Dec 2020.

  1. Revenue

There would typically be cases for decrease or increase in sales returns, higher value discounts, etc. thanks to COVID-19, these factors ought to be thought of whereas measuring the variable thought as per IFRS fifteen – Revenue from Contracts with Customers. Since IFRS fifteen needs revelation of data that enables users to grasp the character, amount, timing, and uncertainty of money flows arising from revenue, entities got to take into account the revelation of the impact of COVID-19 on the financial gain.

  1. Leases

While accounting for leases within the monetary statements, the impact of the modifications within the lease arrangements thanks to changes in terms of lease arrangements got to be thought of, whereby the lease {giver|owner|proprietor} would possibly give concessions for rent payment/rent-free periods, etc. Anticipations within the terms shouldn’t be accounted for.

A modification to IFRS sixteen – IASB has been issued in could, 2020, that inserted a sensible expedient for lessees. It grants the tenant AN choice to not apply for the lease modification provisions wherever lease concessions are an immediate result of the COVID-19 pandemic subject to the issued criteria.

  • Variable lease payments

Variable lease payments to be accounted for as per IFRS sixteen – Leases would possibly get compact, wherever the payments are coupled to the revenues from the utilization of the underlying assets, thanks to the reduced monetary activity of the tenant.

  • Discount rate

Risks related to the discount rate to see the current worth of the new lease liabilities got to be thought of.

  • Reassessment

Entities got to assess whether or not any lease arrangement has become taxing thanks to the COVID-19 state of affairs as per IAS thirty-seven.

  1. honest worth measure

Fair values of assets/liabilities as prescribed by bound standards like IFRS nine – monetary Instruments and IAS sixteen – Property Plant and instrumentality (PPE) ar to be determined as per IFRS thirteen – honest worth measure. As per IFRS thirteen, honest values’ determination depends on the noticeable value or application of valuation techniques. thanks to COVID-19, there has been a considerable decline within the market costs {of monetary|of monetary|of economic} instruments moreover as a discount within the level of activity within the current capital and financial market. This has crystal rectifier to an amendment within the assumptions want to live honest values like discount rates, credit-spread/ counterparty credit risks, etc.

Sensitivity disclosures at the side of disclosures in respect of the key assumptions and judgments created by the management got to be provided beneath the IAS one – Presentation of monetary Statements and IFRS thirteen.

  1. monetary Instruments – Impairment Losses

Due to the many declines in economic activity across the world, estimation of Expected Credit Losses (ECL) would be a difficult task for the management, which needs incorporating progressive info about the impact of COVID-19. The relevant disclosures like strategies, assumptions, and information utilized in estimating ECL are necessary as per IFRS seven – monetary Instruments Disclosures. If the entity is unable to assess the impact of COVID-19 whereas evaluating the impairment thanks to inadequate info, the constant must be suitably disclosed.

  1. Government Grants

The management must monitor government legislations to assess whether or not the help provided amid the COVID-19 occurrence meets the definition of presidency grants. Entities got to take into account the disclosures on accounting policies for state grants and their impact and alternative help on the entity’s financials.

Grants in respect of lease agreements

Any type of compensation provided/declared to the owner for providing a concession to the tenant needs AN assessment to conclude whether or not the help is as a lease modification beneath IFRS sixteen – Leases or as beneath IAS twenty – Accounting for state Grants and revelation of presidency help.

  1. Post record Events

The uncertainty and challenges exhibited by the COVID-19 state of affairs need the management to fastidiously judge the consequences of succeeding events and the latest developments occurring post the record date and before the date of the Auditor’s report. This can facilitate a lot of info regarding the circumstances throughout the news date. The impact of such events on the financials ought to be thought of in accordance with IAS ten – Events once The news amount.