How has COVID Affected Financial Reporting and Auditing
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How has COVID Affected Financial Reporting and Auditing

COVID-19 pandemic has influenced all the financial markets and economies around the world. Voluntary changes in customer behavior have impacted entities in retail, leisure, hospitality, entertainment, and travel sectors. All these industries have reported a drastic decline in their revenues. 

Liquidity concerns, deteriorating credit, financial market erosion, and volatility are general economic downturn-like conditions experienced by most firms. These conditions have reduced demand for products and increased inventory levels, followed by layoffs, furloughs, and restructuring activities.

As the coronavirus pandemic is set to increase in duration and magnitude, these disturbances are expected to continue, further causing a border economic downturn. The combination of these aspects can result in a negative impact on financial results. 

Most of the think tanks and monitoring groups suggest affected firms to assess certain factors. Companies need to create reports concerning how much they rely on supplies coming from the regions affected due to the pandemic. The impact on overall sales, daily-operations, price fluctuations for their products, effects on the firm’s cash flow, and areas of accounting impacted the most. 

Which are the affected areas? 

The private sector and governments’ response to the pandemic has resulted in economic consequences and uncertainties. All these aspects have caused a considerable impact on various areas of accounting. 

Impairment of tangible and intangible assets, the net realizable value of inventory, deferred tax assets’ recoverability, credit losses on financial assets, and classification of financial liabilities as non-current or current are factors impacted. 

Writing-down assets due to pandemic’s effects 

March and June quarter results for firms worldwide showed a profound effect due to the severe disruption. Business activities are experiencing severe disorder even now, in August. Firms that provide accounting services in the USA recommend companies to include details about the reduction in revenue and earnings forecasts as a part of notes in their financial statements.  So, businesses are expected to follow the practice of adding footnote disclosures concerning the effects of pandemic during the reporting period. 

Further provisions 

The coronavirus outbreak is expected to continue impacting accounting practices even further. So, perhaps for the first time, accounting and finance experts are considering making provisions in the financial statements for such eventualities in the future. 

Uncertainty arising out of the pandemic has forced companies to revise their estimates for expenses and revenues. Creditors might delay their payment or may not even repay. Thus, there needs to be a provision for additional bad debts. 

For asset management companies and banks, the loss-loss provisioning has become more complicated as some clients from the manufacturing sector may not pay on time. And as a result of the government imposed lockdown, their machinery suffers due to lack of servicing and maintenance activities. So, the estimated life of such machines’ should be reassessed as the depreciation charged on these units drastically changes.  Firms also need to make provisions in their accounts for unusual items like expenditure on temporary social security measures for employees and wages paid to laborers’ during the lockdown periods. 

In some countries, both holding companies and their listed subsidiaries operate in the market. Stock prices for several companies are at their record low. It is advisable for holding companies to ensure their balance sheet highlights the impairment of their investment in subsidiaries.
Accountants need to be much more cautious while making estimates and judgments’ based on the ‘going concern’ principle, as the coronavirus pandemic may last for more time than previously assumed. Companies that outsource accounting services from India do not need to worry as experts offer the best recommendations in accounting, considering the coronavirus pandemic.

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