Question

How will Coronavirus impact future financial reports for State and Local Governments?

I am just genuinely curious from an accounting perspective?

Answer 1

· Yeah Even I was curious about that and did my research , hope this could help you

· Financial statements for multinational companies may have to reflect the impact of the Coronavirus-related shutdown and disruptions if any on business operations,

· Practice alerts issued by audit firms to clients and to audit teams internally have so far focused on the impact on financial statements for the year ended December 31, 2019 but auditors say that the same rules will apply to firms for the full year ending DEC 2020 and for subsequent quarters..

· “While this will have an impact in the next 1 or 2 quarters, companies with strong balance sheets will be able to withstand this. The problem, however, is that no one knows how long this pandemic and its resultant impact on business will last. Auditors have to make judicious calls

There are two significant issues that may crop up in case of major damage to business activities due to the Coronavirus and they include

1. · impairment resulting from financial losses,
2. · breach in bank covenants etc and
3. · the impact on the company as a going concern.
4. · Since much of the disruptions happened after December 31, 2019, companies need to account for any changes as a non-adjusting post balance sheet event,

Also few more Disclosures are required

1. · . It goes on to add that any entity shall disclose the nature of the event, an estimate of its financial effect
2. · or a statement that such a financial effect cannot be made for each material category of non-adjusting event after the reporting period.
3. · In this case, for most UScompanies the reporting period will be December 2019 and they will have to declare the impact of the Coronavirus disruption in the next quarter.
4. · The second issue that arises whether the accounts of a company need to be prepared on a going concern basis and the nature of the deterioration in operating results and financial position. “
5. · It is necessary to consider whether the events that have occurred after an entity’s December 31, 2019 reporting date in relation to the Coronavirus outbreak have caused a significant deterioration in economic conditions for an entity,
6. · or have introduced significant uncertainty
7. · . “If so, an assessment is needed on whether this results in significant doubt on the entity’s ability to continue as a going concern,”
8. 
   
9. For auditors, an emphasis of matter paragraph may be required to draw attention to disclosures in the financial statements about the significant subsequent event.
10. · And it’s that uncertainty that’s making it difficult for auditors to take calls on issues like going concern.
11. For instance, two of the country’s biggest automobile manufacturers are unable to roll out their new products in the coming months. “
12. · They do not have raw materials required to finish the product and launch the cars,” said the audit head of a firm.
13. · “These two companies along with almost all companies in the automobile sector will see inventory impairment this quarter or next,”

· Significant Impact on Business

· “There could be a significant impact on the financial statements of businesses affected by Coronavirus, including disclosures on

1. · going concern,
2. · change in estimates used for impairment,
3. · fair value assessments at year-end and reporting as a new Key Audit Matter in the auditor’s report.
4. · A careful consideration of the accounting and auditing rules are needed to ensure appropriate compliances
5. · Auditors will be required to take a call to whether losses or drop in profits or revenue of a company is due to Coronavirus. Many auditors will also have to put a going concern—red flag of sorts—in the balance sheets of companies and will have to assess the exact impact on the company in coming quarters.
   

· The American Institute of Certified Public Accountants),(AICPA) the CPA body, is also looking to come out with guidelines for auditors on how to give clarifications and going concerns due to Coronavirus.

·

· Impact on Funds

1. · Many companies will see huge impact on their cash flows and receivables as well
2. · . Some receivables will have to now be classified as bad debts,
3. As more and more companies ask their employees to work from home, the issue of employee benefits and their accounting is bound to arise while closing December 31st accounts.

·

Employee Benefits

1. · “A lot of companies have been taking ad hoc decisions in terms of employee benefits like,
2. · for example, the work from home policy that many companies are adopting. So now what happens to the higher communication costs or how does it affect the company’s leave policy? These matters have to be evaluated

there are many more effects and list is not exhaustive , so for your understanding , i made a brief idea .