COVID-19: Preparing accounting statements during the crisis
Article 3 minute read

COVID-19: Preparing accounting statements during the crisis

26 March 2020

As the coronavirus pandemic causes unprecedented disruption, what do businesses need to be aware of when compiling financial statements?

What has happened over the past few weeks and what will follow in the coming months has been unexpected and is still not completely understood.

The coronavirus crisis is first and foremost a human tragedy, of course, but it has upturned every aspect of the modern world, including causing untold disruption to business.

As the effects of the pandemic continue to unfold, health, business and government policies are changing rapidly in response, and this is creating a minefield for companies when it comes to preparing financial statements.

Revisit, reconsider, reshape

Most organisations are likely to have everything in place to close 2019 accounts, but they should still assess the impact of the coronavirus crisis on their business and think about any risks or uncertainties, as well as any mitigating actions that may need to be included as disclosures.

Companies should consider taking the following steps.

  • Assess whether C19 is an adjusting or non-adjusting event in the 2019 financial statements.
  • Assess the impact of C19 on estimates and judgements inherent in the financial reporting.
  • Assess whether accounts still need to be prepared on a going-concern basis.
  • Prepare adequate disclosures in case you assess that C19 is a non-adjusting, material event. The disclosures should include the nature of the event, the estimate of the financial effect, impact on carrying amount of assets and liabilities, impact on revenues, impact on debt covenants.
  • Assess whether the audit will be completed in time for filing the financial statements.

2020 is when the biggest impact will be felt in accounting terms, and policies will need to be reconsidered in light of C19. A host of actions will need to be taken.

  • Inventory valuation: this will need a rethink if traditional purchasing arrangements are no longer valid and companies need to find new ways of getting the goods they need. What effect will these new arrangements have? 
  • Impairment: it’s highly likely assets could be worth less than in the past, so it is important to assess the necessary provisions in relation to this.
  • Revenue recognition: will the revenue recognition principles need to be revisited because of the collectability issues? 
  • Foreign exchange volatility: ask how this will look in the accounts. Will additional hedging instruments be needed to mitigate this risk?
  • Discontinued operations: will the closure of any part of the business affect accounting statements?
  • Loan covenants: will any decrease in operations impact financial ratios and call upon covenants in agreements?

Robust planning

The above list is not exhaustive, and it will be necessary to take steps to foresee these and many other problems. 

If they haven’t yet done so, businesses should create a taskforce to identify areas most affected by the situation. This team must be multidiscipline, as this is not just about accounting policies but incorporates a legal element, involving contracts and clauses too.

These taskforces must continue to monitor affected parts of the organisation and map their findings against accounting policies, which could be crucial in planning for future ‘black swan’ events. It’s also important to think about access to documents – any business that doesn’t already have document management systems or electronic documentation in all of the locations in which it operates, must consider how this will be addressed.

The scale of this crisis is unprecedented, at least in our lifetime, and the full impact and consequences remains unknown. However, robust planning and staying up to date with developments give you the best chance of getting on the front foot.

Keep up to date on COVID-19 government support schemes for businesses – click here to read more

If you need clarification on what support is available for your operations, and help making the applications, get in touch with our local experts.

Written by

Emine Constantin

Global Solutions Director, Accounting & Tax

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