In: Accounting
Matter of discussion
Under current situation of COVID19, it is expected that changes in the accounting standards will be required now to account for the effects of this pandemic. Considering the current situation, you are required to discuss how this pandemic will affect the disclosure of property, plant and equipment in financial statements of business entities and will it affect the treatment of borrowing cost utilized for development of property, plant and equipment
The massive public attention of The COVID-19 corona virus pandemic. Organizations are ever more anxious about how it will influence their financial results and the performance of their supply chain partners.
While the full effects of the COVID-19 outbreak are yet mysterious, the crash is already global. Every industry is affected in some way. As the outbreak continues to grow worldwide, U.S. companies, large and small, are devising contingency plans and alternative their goals and budgets to address potential risks. Similarly, other stakeholders and investors want to know how companies are responding to this up-and-coming risk factor.
Consider the ASC (Topic) 855 Subsequent Event. As per GAAP subsequent event means events that take place after a reporting period, but before the financial statements for that period have been issued or are existing to be issued. Depending on the situation, such events may or may not require exposé in an organization's financial statements
Two kind of Subsequent event as per GAAP:-
1. Subsequent event Recognized : These events offer additional proof about circumstances that existed at the date of the balance sheet and affect the estimates intrinsic in the process of preparing financial statements
2. Subsequent event Unrecognized: These give evidence about conditions that didn’t live at the date of the balance sheet being reported on but arise after that date.
Furthermore, ASC (Topic) 450, Contingencies, outlines the accounting and exposé requirements for loss and gain contingencies.
The key areas to be measured during these difficult times as given under:
Financial Statements Risks of COVID 19
Business can consider the related risk COVID19 as per GAAP / IAS
· Financial Statements: Companies should consider the potential for impairment, as well as the need to adjust cash flow projections and other assumptions used to measure non-quoted financial instruments. Financial assets reported at fair value on the balance sheet may result in realized and unrealized losses.
· Property, Plant And Equipment: COVID 19 outbreak may affect the expected useful life and residual life of PPE which require management review. In case the exceptions differ from previous estimates, than change in estimate should be accounted for in accordance with accounting policies, changes in accounting estimate and borrowing cost errors as per IAS 8.
· Borrowing Cost: Capitalization of interest on borrowings might need to be suspended in case the development of an asset has been suspended on account of COVID19. Business should also evaluate this area .it should do as per the fare value assessment.
· Reports Disclosures: other in order that accompanies the financial statement may include additional discussion of risks associated with the outburst if the expected impacts should be significant. Management would need to consider whether the explanation of the events relevant understanding the impact on the entity complies with regulatory requirement and responds to regulators and user expectations.