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Financial reporting issues to consider post covid 19

Businesses and financial markets are dealing with increased volatility as the horrors of the coronavirus outbreak continue. Travel bans and quarantine measures have resulted in a loss of revenue and halted supply chains for global organizations. Health and safety is the top priority during this difficult time, however, providing support for struggling businesses is also necessary. 

Governments have announced several plans to assist the affected businesses.  

During these unprecedented times, there is a dire need of reliable information and transparency.  A huge chunk of this reliable information will be carried out via financial reporting. This is an important challenge for auditors and financial reporters as businesses need to regularly monitor updates and analyze the potential impact of covid-19.

Following are the few issues that are of utmost importance and need to be addressed on priority basis.

Revenue Recognition

The principles concerned with reporting the timing and uncertainty of revenue and cash inflows from a contract with a consumer are outlined in IFRS 15, Revenue from Contracts with Customers.  Due to covid-19 outbreak there may be an increase in expected returns for products that are already sold. Thus businesses and their management need to revisit the assumptions they may have already made regarding cash and revenue inflows from products that they have already sold. For this purpose, FASB has cast a vote in favour of extending the date for its revenue recognition standard by a year for businesses that are yet to issue their financial statements

Cash flow and Modification of contracts

Cash flow challenges have got businesses worried across the globe. These businesses are facing loss in revenues while the operating costs have been on an upward trend. In order to finance the disruption in cash flow, businesses need to seek and explore alternative sources of financing. They also need to revisit debt covenants and make necessary changes wherever necessary.

Financial institutions in the wake of the outbreak have been asked to provide leverage in cash flow obligations to borrowers. These leverages will certainly lead to credit losses, thus, these financial institutions such as banks need to modify contracts and revisit loan portfolio measurements. These measures are not industry specific, other industries, such as the construction and real estate also need to consider their respective losses subject to relief on rent.

Going concern

A business’s ability to continue is required to be assessed by the company’s management as per Presentation of Financial Statements, IAS 1. The management needs to perform the going concern assessment upto the issuance date of financial statements. Due to the uncertainty caused by covid-19 outbreak, it is important to consider the impact new information will have but since it may not be readily available, the timeframe of the assessment which currently relates to the first twelve months after the balance sheet date needs to be extended.

Due to material uncertainties and the current economic conditions, a company’s ability to operate by the going concern principle is doubtful. As a result, businesses are required to fully disclose these uncertainties when they prepare financial statements. As we know that not all businesses are affected by the same degree, the disclosure of the uncertainties they face will vary from case to case.

Taxation and government aid

Governments in response to covid-19 pandemic have taken measures that will act as an economic stimulus. These measures include but are not limited to, tax reductions and exemptions, rent and deferral reductions and extended expiries.  

These government measures which aim to provide relief for businesses can be split into – direct assistance via government grants and changes in taxation laws. The accounting treatment will be subject to whether the funding is received via government grant or a tax concession, as outlined by IAS 20, Accounting for Government Grants and Disclosure of Government Assistance .

Businesses also need to determine whether a relevant income tax law has been approved by their concerned government. These businesses need to be careful whether a particular tax relief needs to be accounted for as a government grant receipt or an income tax reduction.

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Source:- https://accountingpartner.ca/2020/09/01/financial-reporting-issues/

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Effective Strategies For Managing Monetary Resources During A Time Of Crisis The world is in a state of panic and shock as waves of economic depression hit various parts of the world again. In these trying times, financial planning is a delicate house of cards. Accounting Partner is here for you as a resource guiding you to safer shores by reassessing your monetary resource management.

1. Gauge the Before and After of Your Financial Health

2. Encourage Clients to Pay Deposits

3. Keep Cash Flow Separate from Profits

4. Introduce Incentives for Speedy Payments

5. Introduce Favourable Payment Terms

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Bookkeeping Services In Canada | Tax Filing Services in Canada

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