Accounting implications of the coronavirus
The spread of COVID-19 is truly unprecedented, with far-reaching personal, business, and economic consequences. All entities are faced with the challenge of properly treating the implications of the pandemic in their financial statements that result from reductions in sales and earnings, unavailable personnel, supply chain interruptions, financial market downturns and more.
Proper reporting of subsequent events is critical for any entity with a fiscal year that ended prior to the start of the pandemic but has not yet made financial statements available for issuance. Discussion of the known or potential impact of COVID-19 will be a disclosure-only event, if the condition did not exist as of the balance sheet date. The disclosure may state that an estimate of the financial statement effect cannot be made since the effects of the pandemic are on-going.
So, what's happening?
Going forward, interim financial reporting post-pandemic will be impacted in a wide variety of ways, including the following examples relating just to measurement of assets alone:
- Many equity investments measured at fair value or the net asset value practical expedient will have unrealized losses impacting earnings.
- If an entity elected the alternative measurement method of modified cost for qualifying equity investments, the need for an impairment loss write-down may be triggered.
- Financial instruments, such as receivables, may require bigger credit-risk allowances.
- Inventory carrying seasonality, spoilage or other risk factors may require write-down to net realizable value.
- Long-lived assets (including PP&E, goodwill and other intangible assets) may qualitatively trigger impairment evaluation – even if between reporting periods or it is not time for the normal annual evaluation.
- Costs capitalized along with a contract with a customer may need to be written-off if the contract was early terminated.
Take care. Every line item in the financial statements – and every disclosure- should be analyzed for potential impact as a result of COVID-19.
The content contained in this article is for information purposes only and not tax advice. You should consult your own tax advisor for tax advice that applies to your particular situation.
Jennifer has more than 25 years of experience in designing high-quality training programs in a variety of technical and soft skills topics necessary for professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, where she focuses on designing and delivering practical and engaging accounting and auditing training. Jennifer started her career in audit for Deloitte & Touche. She graduated summa cum laude from Marymount University with a BBA in accounting.