The coronavirus pandemic continues to threaten America’s economy and businesses. Millions of people have had to close their establishments temporarily to adhere to “stay-at-home” orders and social distancing guidelines. The health and safety of citizens is being prioritized. Many businesses are dealing with lost income, disrupted supply chains, and the significant fluctuations of the stock market.
Financial reporting will play an essential role during this uncertain time. Auditors, audit committees, and financial statement preparers will face challenges. Though current accounting requirements remain in place, there have been regulatory updates and deadline reliefs due to COVID-19.
Here are the 3 financial reporting issues that companies will need to prioritize:
- Liquidity and Operating Resources
Right now, companies are concerned about their organizations’ survival. Management needs to assess their company’s ability to continue as a going concern. There are many uncertainties to this pandemic, but preparing financial statements based on o9going concern will allow companies to disclose their uncertainties. Continual updates will be needed as the outbreak circumstances evolve.
- Impairment Calculation
Assets are considered impaired when a company cannot recover the asset’s carrying value through using it or selling it. Companies are required to determine if there is any impairment of nonfinancial holdings at the end of a reporting period. Measures taken to stop the spread of disease, like closing manufacturing plants, restricting travel, etc. can be considered impairment indicators. The pandemic will present challenges in forecasting future cash flow budgets. Companies will need to provide disclosures that detail forecast assumptions, evidence, and the impact of potential change.
- Income Tax and Government Assistance
In response to the coronavirus, the government has introduced support resources for small businesses along with broader stimulus packages. These support methods include tax reductions and exemptions, direct subsidies, low-interest loans, etc. Relief methods may fall within the standards on income tax or government grants. The accounting will be different in either case, and companies will need to determine how to account for these measures properly.
These 3 issues will have an impact on financial reporting. As a result of COVID-19, relief measures may fall within the standards on income tax, as well as on government grants. At Estes CPA, our firm is aware that we are living in unprecedented times. Financial reporting can play a crucial role in communication during this period.