Financial reporting and auditing in the shadow of COVID-19
The business landscape
Since the COVID-19 outbreak was declared as a pandemic on 11 March 2020 and the UK government imposed a lockdown on 23 March, a large majority of UK and worldwide businesses have been battling to survive in an ever changing landscape and left counting the costs of the virus. Global stock markets have all seen huge falls since the outbreak began, the number of people filing for unemployment (particularly in the USA) has hit record highs, demand for oil has all but dried up and prices have crashed, governments around the world have introduced travel restrictions and many advanced economies have already officially entered recession.
Against this backdrop of uncertainty and the unprecedented challenges to the UK economy that the Coronavirus is posing, the UK government has introduced a raft of tax and economic measures designed to minimise the disruption caused during this period. These include the Coronavirus Job Retention Scheme (CJRS), Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loan Scheme (BBLS), Time-to-Pay arrangements, VAT deferrals and business rate holidays. In addition to these measures, some landlords have provided rent holidays or deferrals to assist their tenants in getting through the coming months.
Financial reporting and auditing considerations
Whilst many business owners will have quite rightly been focussed on protecting their companies in recent weeks and retaining their employees, COVID-19 is likely to have significant accounting and auditing implications for many entities. Business owners must carefully consider their unique circumstances and risk exposures when analysing how recent events may affect their financial reporting. In turn, auditors are facing their own challenges in the current climate that include auditing going concern, auditing revenue, attendance (or non-attendance!) at stocktakes, valuations and group audits with overseas subsidiaries.
In the coming weeks, we will be publishing a series of articles that look at some of the key accounting and auditing considerations that both management and auditors will need to consider in the coming months. These will include the following issues:
- Financial reporting around the pandemic response Government incentives
- Post balance sheet events
- Going concern disclosures (and audit implications)
- Other disclosures including principal risks and uncertainties and material judgements and uncertainties
- Revenue recognition
- Impairment implications
- Onerous contracts and breach of covenants
- Accounting for rent/rate holidays and government aid
- Accounting for and auditing revenue during COVID-19
- Other issues (holiday pay, SSP, deferred tax assets)
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