Accounting Impact Of Coronavirus

Accounting Impact of Coronavirus

Accounting Impact of Coronavirus (Covid- 19) for the entities having reporting date of 31 December

2019

Hello people,

We all are aware how the Coronavirus has affected the population of world and also the World economy.

We read news about this every day or even every minute but has any one of us ever thought what would

be the accounting effect of this.

We all are accountants so, at any given situation, first we think what the accounting adjustment or

effects would be.

So, lets discuss how can we estimate its impact:

As per IAS 10, ‘Events after the reporting period’ is it an Adjusting event or Non-Adjusting event:

What IAS 10 states, adjusting events are those events which provides additional evidence of

conditions that Exited at the reporting date.

Non-Adjusting events indicates conditions that are arises after the reporting date.

What was the situation on Reporting date:

As on 31 December 2019 there was an unidentified virus that had been reported with few numbers of cases. There was no evidence of actual transmission of virus.

What was the subsequent event:

Subsequently, the virus detected as the CORONA and it could also transmit through Human to Human.

The Spread of virus first in China and after that over the globe had increased. Due to which many

companies had to give work from home to employees.

Due to virus spread over the China, the world economy has slowed down. Many industries got affected.

So, the question comes here is whether the effect of Covid- 19 is an Adjusting event or Non-

Adjusting event:

So, it all depends on the reporting date of the Companies

? For Companies having 31 December 2019 as Reporting date it would be considered as a Non-

Adjusting event.

The unknown virus on the reporting date was exited but subsequent spread of the virus does

not give additional evidence. Hence the Companies management should ensure the there will

not be any impact on measurement of asset and liabilities.

As per IAS 10, the material non-adjusting events are to be disclosed in the financial

statements. If possible to management then they should quantify the amount of impact.

? For Companies having reporting date after 31 December 2019 it would be considered as an

Adjusting event

More information about the Covid- 19 is available that market will factor. Adjusting events are

taken into consideration in financial statements.

1. The impact of the same can be seen in assets and liabilities reflected at fair value,

recoverability of deferred tax assets, classification of current or non-current liabilities.

2. The market situation would also trigger Impairment testing

3. If the financial situation of the company deteriorates, financial covenants may be

triggered. Therefore, the financial liabilities will become immediately repayable. If this

cannot be remediated before the reporting date, classification of the respective financial

liabilities as current liabilities is required, regardless of the remaining contractual term.

4. Disclosure of Contingent liabilities

5. For Pharmaceutical industries demand would be high as there are emergency where as

for Textile industries demand would be very low. Hence stock valuation would also be

affected.

There are many more impacts if we considered virus impact as an adjusting event.

The Last important thing which we should also considered when we are dividing adjusting and nonadjusting

event. What about Going Concern assumption?

IAS 570 Going Concern gives assumption which needs to be followed by the Companies, Under the

going concern assumption, an entity is viewed as continuing in business for the foreseeable future.

General purpose financial statements are prepared on a going concern basis, unless management

either intends to liquidate the entity or to cease operations or has no realistic alternative but to do so.

If the conclusion is that the significances of the Coronavirus out break have led to a deterioration of

the financial situation after the reporting date that is so severe that the going concern basis of

preparation is no longer considered appropriate, the financial statements (or interim reporting)

would need to be adjusted. This will require application of the general measurement, recognition and

disclosure requirements, with attention paid to the requirements for assets that are being held for

sale, the classification of the company's debt and equity instruments, impairment testing and

recognition and measurement of provisions.

What do you people think, Going Concern Assumption would only be affected to Adjusting event or it

will be also affected to Non-Adjusting event:

So, let me tell you, as per IAS 10 and ISA 570, the going concern assumption would impact to all

events whether they are adjusting or not.

The Companies should consider the Impact of Coronavirus on financial statements before classifying

under adjusting or non-adjusting event. As Companies will be able to analyse whether the financial

position has drastically eroded or not.

- Krina Shah

You are not logged in. Please login to post comments.