Accounting Considerations Related to Coronavirus Disease 2019

Global responses to the coronavirus disease 2019 (COVID-19) outbreak continue to rapidly evolve. COVID-19 has already had a significant impact on global financial markets, and it may have accounting implications for many entities.

Some of the key impacts include, but are not limited to:

  • Interruptions of production;
  • Supply chain disruptions;
  • Unavailability of personnel;
  • Reductions in sales, earnings, or productivity;
  • Closure of facilities and stores;
  • Delays in planned business expansions;
  • Inability to raise financing;
  • Increased volatility in the value of financial instruments; and
  • Reduced tourism, disruptions in nonessential travel and sports, cultural and other leisure activities.

In addition, entities should consider the increasingly broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets.

Entities must carefully consider their unique circumstances and risk exposures when analysing how recent events may affect their financial reporting. Specifically, financial reporting and related financial statement disclosures need to convey all material effects of COVID-19.

In March 2020, Deloitte issued IFRS in Focus which highlights some of the key issues to be considered by entities in preparing their financial statements applying IFRS Standards for periods ending on or after 31 December 2019. It does not address management or risk reporting that without a doubt will also need to be considered.

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Accounting Considerations

As COVID-19 continues to spread globally, it may be appropriate for entities to consider the impact of the outbreak on accounting conclusions and disclosures related to, but not limited to, the following:

  • Impairment of non-financial assets (including goodwill);
  • Valuation of inventories;
  • Allowance for expected credit losses;
  • Fair value measurements;
  • Onerous contracts provisions;
  • Restructuring plans;
  • Breach of loan covenants (including impact on the classification of liabilities as current vs non-current);
  • Going concern;
  • Liquidity risk management;
  • Events after the end of the reporting period;
  • Hedging relationships;
  • Insurance recoveries related to business interruptions;
  • Employment termination benefits;
  • Share-based compensation performance conditions and modifications;
  • Contingent consideration in contractual arrangements;
  • Modifications of contractual arrangements; and
  • Tax considerations (in particular, the recoverability of deferred tax assets).

The ultimate recognition of accounting impacts related to these issues will vary depending on each entity’s specific facts and circumstances. IFRS in Focus provides more detail on accounting areas that may be more likely to be affected as a result of the COVID-19 outbreak.

Source: IFRS in Focus – Accounting considerations related to coronavirus disease 2019

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