Closing/reporting are important to a company’s financial accounting and its bookkeeping. Ledg...
The start of the first quarter was hit by the Pandemic due to Covid-19, also known as Coronavirus. The expected growth and returns of every company have fallen drastically. Due to this government has restricted economic activity in the world. The effect was so impactful that it disrupted the day to day activities, where the government went into complete lockdown. This was due to the global outbreak of the pandemic. This brought out certain financial issues. In this article, we are explaining the Impact of Covid-19 on Financial Reporting.
a. What were the pandemic efforts on financial results/ financial reporting and how they have to be disclosed?
b. What measures have been taken for the associated business risk and how they are communicated to the shareholders?
These are some of the questions which have arisen in the wave of Pandemic?
The answer to this question would be different for every industry. The worst-hit were the hospitality, retail and transport sector.
To determine the implications of cash flows and liquidity to maintain a healthy balance sheet.
To maintain business continuity, “No regrets” activities to be implemented now.
What is funding and how it is available.
Implication of the financial reporting Services and the right skills and technical capabilities with the existing team enables management to make a critical business decision.
Management can consider the following response to the various business issues:
This is the list of critical financial reporting areas where the entities need to take steps when determining the impact on business and on their financial position and disclosure of the financial statements to be made by the company due to Covid 19:
It is the company law principle that a company has a perpetual succession.
The financial principles are very clear about the aspect that an entity is forever. The company has perpetual succession, or it is never-ending.
From this point of view, it is to be considered that, the impact of Covid-19 should be assessed on the balance sheet and to be checked whether going concern assumption is appropriate to them or not.
The assets are classified into two categories as tangible and intangible assets. The tangible assets include property, machinery or equipments, whereas intangible assets include-trademarks, patents, copyright etc.
It has to be evaluated that there could be an impact of some legal factors which has to be checked on their values. This means while assessing or computing the importance of these assets, it needs to be prevented from the legal side- such as there could be a decrease in import or exports for the company in the current quarter or coming quarters, and restriction of contracts with alien enemies/ countries-those contracts shall be prohibited.
Covid-19 will reduce future productivity and increases the breach of stipulated conditions in the contracts with the parties.
As the financial reporting over the assets like depreciation which still needs to be charged through the assets were underutilized due to unforeseeable circumstances.
Various entities had to lay off their employees or the workforce. The pressure entity to pay the termination benefits, to the terminated employees.
The management will have to take the expense of the benefits given or to see when to calculate them as a liability or expense in the balance sheet, in their financial reporting.
Looking at the current scenario of Pandemic, there were changes made in the current labour law-like- shift in the working hours and what pattern work to be followed.
The entity needs to calculate the defined benefits obligations- such as- appropriate interest rate, future salary increase, or employee turnover.
In the financial reporting, the company shall give the estimates over the defined benefit obligations and the assumptions. Also, about the sudden fall of the market and the sudden decline of the corporate bonds rates that were due to the Covid-19. The company has to clear whether Coviid-19 has impacted their assumptions in its financial reporting and estimates needs to be changed or not.
The impact of reduced flow of goods and services and its effect on the transfer pricing agreements.
In financial reporting, it has to be shown the impact of differed tax benefits.
There would be renting or leasing agreements clauses and its clause of repayment due to the impact of Covid-19. In the financial reporting, some revised terms for payments and concessions shall be recorded while accounting for them in the balance sheets and reports.
The new lease agreements have to be recorded, shown as the effect of Covid-19.
Read our article:ERP Implementation and Automation of Financial reporting