The global coronavirus pandemic has brought about unprecedented challenges across all sectors, and financial auditing and reporting is no exception. Businesses are grappling with the economic ramifications, disruptions, and shifting consumer behaviors, undergoing changes.
The pandemic has necessitated reevaluating traditional auditing practices and financial reporting standards to accommodate the new normal.
The far-reaching repercussions of the pandemic on financial auditing and reporting, the adaptations, and innovations have emerged in response to these hard times.
From remote audits and enhanced risk assessments to the evolving regulatory environment all matters. Let’s understand how auditors, and regulatory bodies are surviving these hard times. As a business owner, ensuring transparency, reliability, and accountability in financial reporting is crucial for success.
Coronavirus Effects on Financial Reporting
2019 Calendar Year-End Reporting Enterprises:
The main impact drivers on domestic firms started in Jan 2020 for a majority of firms. In this scenario, for subsequent events, calendar year-end enterprises will mostly consider COVID-19 impacts.
Two Subsequent Event Types (Under U.S. GAAP):
Recognized Subsequent Events – These refer to the transactions or events that provide added proof about situations. It emphasizes the balance sheet date, including the estimates in the financial statements’ preparation process. It is Type I subsequent events.
Non-Recognized Subsequent Events – These refer to the events that provide proof about situations not mentioned in the balance sheet date. It emphasizes on those that came into existence following that date. It is Type II subsequent events.
Going beyond timeline, enterprises for the calendar year-end will most probably experience the impact of coronavirus on accounting falls. It will categorized under the non-recognized subsequent event. Ultimately, the same would reflect in the financial statements against the Jan. 1, 2020 starting period.
Corona- The Audit Planning Meetings’ Highlight
The corona pandemic will be the highlight of the entire meetings of audit planning. Andrew Imdieke, an assistant professor working at the University of Notre Dame’s Mendoza College of Business. He said that contingency plans are already being implemented by the accounting firms against pandemic effects on audits.
He further adds, “If you have a team of 10 people that are typically in the field for a particular client, you have to start thinking what if this all of a sudden spreads throughout an office or throughout a client, and you don’t have the people to do the work. That’s just within the firm — the resource constraints they might face in the planning process.”
The audit planning sessions will also take into account the client effects of the pandemic. It will not be limited to key accounts and business operations but on the availability of the staff. There might be problems in this type of meeting due to travel restrictions.
Multiple Financial Statement Accounts
As per the PwC LLP, revenue assertions comprising variable consideration and for different sums paid by customers may be impacted. Besides, numerous types of accounts are likely to witness a considerable change. It includes stock compensation, impairments to intangible assets and goodwill. PwC is of the view that a few effects on the hedging of contracts against forecasted cash flow will be there, and it recommends recognizing depreciation expenses against idled facilities.
Concerning hedge accounting, PwC stated, “Any derivative gains or losses deferred in accumulated other comprehensive income (AOCI) prior to the change in likelihood will remain in AOCI until the forecasted transaction impacts earnings (or until the forecasted transaction becomes probable or not occurring). If a company determines that the hedged forecasted transaction is probable of not occurring by the end of the originally specified time period (or within an additional two-month window thereafter), amounts deferred in AOCI are required to be recognized in earnings immediately.”
Employees and Stakeholders
As per an advisory website statement of Deloitte Touche Tohmatsu Ltd., clients must do detailed operational examinations and ensure open communication lines with stakeholders, suppliers, and employees.
Assets’ Writing and Detailed Disclosures
One must get prepared to write down the assets and make disclosures in detail with respect to the effects of the pandemic.The decline of Wall Street into a bear market, along with the harsh disturbance that is coming into existence fast for many business operations, is definitely going to create a serious effect on March quarter results at many organizations!
The firms that think their activities are getting affected need to make impairments of the assets with in-depth disclosures in their financial statements concerning their lowered revenue and income forecasts.For year-end 2019 financial statements, the February statement of the SEC and PCAOB briefed the public enterprises and their auditors “to consider potential disclosure of subsequent events in the notes to the financial statements.”
Since there is a high possibility for the worsening of the financial fallout for the financial statements of the March quarter, firms are expected to make disclosures concerning the effects of the pandemic during the forthcoming reporting periods. As per Michael Stevenson, CPA, the national practice leader — Accounting & Reporting Advisory Services group for BDO USA LLP in Dallas, “Those impairments will come with a great deal of testing, a great deal of disclosure. But what that looks like at this point is probably unknown.”
Undoubtedly, the corona pandemic is going to create a massive impact on the financial auditing and reporting process. Enterprises need to carefully evaluate the financial performance of their business and include the effects of the pandemic on their finances in their reports. However, this is not the real challenge that business owners are facing; the biggest challenge for them presently is ensuring smooth business operations and cash flow.
Focusing on both these imperative aspects can become overwhelming for them. So, it is advised to seek third-party support when it comes to managing accounting and preparing financial reports in order to set yourself free to focus on core competencies. Are you looking for a reliable partner for financial reporting during the corona pandemic?
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