This page was last updated on: 14 October 2020
Companies and their advisors will need to consider how the spread of coronavirus will affect their business and how these effects should be reported in their financial statements and directors report. The extent of the risk arising and the impact it may have will vary depending on the company’s specific circumstances and exposure. The company’s year-end date, and the information available from the evolving situation will also affect how the impact will be reported in the financial statements.
Over the past number of months, much has been issued in terms of advice from regulators, and commentary, regarding various financial reporting considerations related to the spread of coronavirus. We have assembled below some information that we have come across that may be of assistance to members.
Commentary should not be taken as advice or as a comprehensive analysis of all aspects. This is an evolving situation. When reading information at the links below, due care should be taken of the date of issue and any developments in the interim that may not be reflected in the material published, such as updated statements from regulators etc. There is also a need to be cognisant of the accounting framework being applied by an entity (e.g. FRS 102, IFRS etc.), and the jurisdiction, in considering the relevance of any of the information below.
From the accounting standard setters/regulators:
FRC
The FRC’s COVID-19 Updates section on their website includes FRC news and updates on their response to the Coronavirus Emergency.
When they announced a series of actions with the FCA and PRA on 26 March 2020, the FRC published guidance for companies (‘Company Guidance Update March 2020 (COVID-19)’) (26 March 2020) preparing financial statements during the current Covid-19 crisis (followed by a short ‘Covid 19 update’ on 14 April 2020). This March guidance, in which the FRC highlights some key areas of focus for boards in maintaining strong corporate governance and provides high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting, was subsequently updated, with additional notes on interim reporting (‘Company Guidance (Updated May 2020) (COVID-19)') (12 May 2020), and additional company guidance on reporting of exceptional items and APMs (‘Company Guidance (Updated 20 May 2020) (COVID-19)’) (20 May 2020). Previously too, the FRC had issued advice for companies and auditors on disclosure of risks and other reporting consequences arising from the emergence and spread of COVID-19 (18 February 2020).
The FRC has completed its first thematic review of company reporting since the onset of Covid-19 pandemic (21 July 2020). The review of 17 interim and annual reports with a period end date of March 2020 found that although companies provided sufficient information to enable a user to understand the impact Covid-19 had on their performance, position and future prospects, some - particularly interim reports - would have benefited from more extensive disclosure. The FRC note that, building on the guidance contained in the joint regulators statement (published on 26 March), this review includes guidance and better practice examples for companies currently preparing their annual and interim accounts.
The FRC has issued two Exposure Drafts (23 July 2020) proposing amendments to UK and Ireland accounting standards, both reflecting topical issues. FRED 76 ‘Draft amendments to FRS 102 and FRS 105 – COVID-19-related rent concessions’ proposes explicit requirements for accounting for temporary rent concessions for operating leases occurring as a direct consequence of the COVID-19 pandemic, and within a limited timeframe. FRED 75 ‘Draft amendments to FRS 104 – Going concern’ proposes to: clarify the requirement to assess the going concern basis of accounting; and require the disclosure of any related material uncertainties, when preparing interim financial statements in accordance with FRS 104. Both comment periods ended on 1 September 2020 and the final amendments are awaited from the FRC.
The FRC has issued a statement (18 August 2020) on Accounting for Lease Modifications (Amendment to IFRS 16 – Covid-19-Related Rent Concessions), confirming it will not pursue regulatory action where issuers take advantage of the provisions contained in the Accounting for Lease Modifications (Amendment to IFRS 16 – Covid-19-Related Rent Concessions) before adoption by the EU. The FRC notes the ESMA statement of 21 July 2020 and the Financial Conduct Authority’s (FCA) statement of 18 August 2020, that both the FCA and ESMA will not “prioritise supervision action” relating to issuers’ decisions on whether or not to apply the reliefs that the amendment provides for, noting that where issuers use the reliefs, they will diverge from IFRS 16 as currently endorsed by the EU. (See also subsequent note on endorsement below in the IASB section).
In noting that in these times of unparalleled economic uncertainty, investors are calling for clear and timely disclosures from companies, including any going concern considerations, to help them identify those companies which need the most attention and support, the Financial Reporting Council’s Lab has issued two reports to provide practical guidance to companies in areas of reporting that investors have highlighted as being most critical (15 June 2020). They note that the first report provides further practical advice to companies following the Lab’s infographic issued in March setting out the disclosures investors expect to see from companies during this time of uncertainty and that the second report gives specific guidance on going concern, risk and viability disclosures.
IAASA
IAASA has published its annual Observations paper (22 September 2020) which highlights some key areas that warrant close scrutiny by those preparing, approving and auditing 2020 financial statements in the upcoming reporting season including: the pervasive impact of the COVID-19 pandemic on the recognition, measurement, presentation and disclosure of income, expenses, assets and liabilities in companies’ financial statements; and the challenges and uncertainties facing companies from Brexit. IAASA note that while it’s remit extends only to companies with securities admitted to trading on a regulated market (principally the Main Market of Euronext Dublin – the Irish Stock Exchange), the topics identified in the 2020 Observations paper could usefully be taken into consideration by a much wider range of companies with the aim of producing high quality financial reports more generally and increasing the transparency and usefulness of financial statements for users.
IAASA has also published news articles noting the issuing of: the ESMA public statement recommending co-ordination of supervisory action with regards to issuers’ accounting for COVID-19-related rent concessions (21 July 2020) (see also subsequent note on endorsement below in the IASB section); the ESMA public statement addressing the implications of the COVID-19 pandemic on the half-yearly financial reports of listed issuers (20 May 2020); the ESMA Q&A on the application of the ESMA Guidelines on Alternative Performance Measures in the context of the COVID-19 pandemic (17 April 2020); the ESMA public statement (27 March 2020) promoting co-ordinated action by National Competent Authorities regarding issuers’ obligations to publish periodic information for reporting periods ending on or after 31 December 2019 in the context of the COVID-19 outbreak; the ESMA public statement (25 March 2020) on the financial reporting implications of the COVID-19 outbreak on the calculation of expected credit losses in accordance with IFRS 9 Financial Instruments; and an earlier ESMA public statement addressing actions that market participants have to take in relation to the COVID-19 outbreak in order to preserve investor protection, the integrity of markets and financial stability (12 March 2020).
International Accounting Standards Board (IASB)
The IASB has published a document ‘IFRS 16 and covid-19’ (10 April 2020) responding to questions regarding the application of IFRS 16 Leases to rent concessions granted as a result of the covid-19 pandemic. The IASB note that the document is prepared for educational purposes, highlighting requirements within IFRS 16 and other IFRS Standards that are relevant for companies considering how to account for rent concessions granted as a result of the covid-19 pandemic. Further, the IASB proposed amending IFRS 16 Leases to make it easier for lessees to account for covid-19-related rent concessions such as rent holidays and temporary rent reductions, and, following a consultation process, has issued ‘Covid-19-Related Rent Concessions’, amending IFRS 16 (28 May 2020). As noted above in the IAASA and FRC pieces, ESMA have issued a public statement recommending co-ordination of supervisory action with regards to issuers’ accounting for COVID-19-related rent concessions (21 July 2020). Amendment to IFRS 16 Leases ‘Covid 19-Related Rent Concessions’ was endorsed by the EU on 9 October 2020 and published in the Official Journal of the European Union on 12 October 2020.
The IASB has also published ‘IFRS 9 and covid-19’ (27 March 2020), responding to questions regarding the application of IFRS 9 Financial Instruments during this period of enhanced economic uncertainty arising from the covid-19 pandemic. Again, the IASB note that the document is prepared for educational purposes, highlighting requirements within the Standard that are relevant for companies considering how the pandemic affects their accounting for expected credit losses (ECL).
The IASB has reconsidered and extended the timelines on some of its projects. Find out more here.
From professional bodies:
The Institute Advocacy and Voice Team’s article ‘Going Concern considerations for members preparing or auditing financial statements in the context of COVID-19' (23 April 2020), may assist members that are preparing and auditing financial statements and serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective.
The Institute’s Practice Consulting Team held a webinar to assist members in practice (24 March 2020) on ‘Accounting Issues Arising from the COVID-19 Outbreak’, and the link is available here.
ICAS and ICAEW have jointly published guidance for owners and directors of SMEs to assess the prospects of their business in the wake of COVID-19 (‘COVID-19 and going concern – Guidance for directors of SME Businesses’ (19 May 2020)).
ICAEW’s guide, ‘The financial reporting implications of coronavirus under UK GAAP’ (9 March 2020), is aimed primarily at entities preparing financial statements in accordance with FRS 102.
ICAS’s article ‘Coronavirus and its impact on financial reporting’ (18 March 2020) summarises some of the areas to be considered by entities when producing their financial statements in this uncertain period, referring to both FRS 102 and IFRS. They have also produced some guidance to assist preparers on how to account for some of the UK Government support measures that have been introduced during COVID-19 (First issued on 16 June 2020, ICAS envisage that this will be an evolving document and will be updated as more information becomes available).
Material from some of our member firms or their international networks:
Several of the Institute’s member firms have produced material on the financial reporting implications of Coronavirus. The following is a selection:
Deloitte’s ‘Need to know - Accounting considerations related to the Coronavirus 2019 disease for FRS 102 reporters’ (30 September 2020) discusses certain key FRS 102 accounting considerations related to conditions that may result from the COVID‑19 pandemic. Their ‘Need to know — Accounting considerations related to the Coronavirus 2019 disease’ (updated 18 June 2020) discusses accounting considerations related to the Coronavirus 2019 disease for IFRS and FRS 101 reporters, and a series of webcasts discusses certain key IFRS accounting considerations related to conditions that may result from the pandemic. A short article ‘COVID 19 – The New Normal’ (Financial Reporting Brief April 2020) offers some insight into how this challenge impacts on financial reporting and the article ‘Covid-19 – The Epic Battle Continues’ (Financial Reporting Brief May 2020) continues to look at the accounting considerations that have been magnified by Covid-19.
EY's ‘Responding to Covid-19’ resource centre includes an article ‘IFRS accounting considerations of the COVID-19 outbreak’ (24 March 2020), summarising some of the key impacts for IFRS reporters, and an article ‘Three key issues facing interim reporters in 2020’ (9 June 2020) looking at impairment, going concern and fair value measurement. The articles provide links to different versions of the EY publication ‘Applying IFRS: Accounting considerations of the coronavirus pandemic’, dealing with 2019 and 2020 period ends. The most recent version of this publication is the August version – ‘Applying IFRS: IFRS accounting considerations of the coronavirus pandemic (updated August 2020)’ (29 July 2020) which provides accounting considerations for the financial effects of the coronavirus when preparing annual or interim IFRS financial statements in 2020.
KPMG’s Resource centre on the financial reporting impacts of coronavirus includes FAQs on potential accounting and disclosure implications for companies, for example, ‘How should companies assess COVID-19 events after the reporting date?' (31 March 2020). This resource centre focuses on IFRS standards and the potential financial reporting impacts for 2020 period ends. Also available in the resource centre is KPMG’s suite of IFRS annual disclosure checklists and illustrative financial statements (for annual reporting periods commencing on or after 1 January 2020), which includes an additional ‘Covid-19 supplement’ illustrating additional disclosures that entities may need to provide on accounting issues arising from the pandemic. It incorporates disclosures around going concern, valuation and impairment of non-financial assets, financial instruments, government assistance, rent concessions etc. (September 2020).
PWC’s ‘COVID-19: Financial reporting implications of the coronavirus’ (9 April 2020) looks at some key considerations across IFRS and UK and Ireland GAAP for Irish companies dealing with the impact of COVID-19 on their financial reporting, while ‘COVID-19: The impact on impairment calculations’ (3 June 2020) gives some considerations for impairment calculations under IAS 36 and FRS 102. A webcast on the Financial Reporting implications arising from COVID-19 (18 June 2020) explores the impact of COVID-19 across a number of topic areas under IFRS and FRS 102, including impairment, going concern, disclosures and half-year reporting, together with insights and expectations from IAASA in relation to financial reports of listed companies. Their IFRS based ‘Accounting implications of the effects of coronavirus: PwC In depth’ considers the impact on financial statements for periods ending after 31 December 2019 of entities whose business is affected by the virus, and FAQs and illustrative examples (which are added to as practice emerges), demonstrate the practical application of the principles of this guidance. An ‘Accounting implications of coronavirus: PwC In brief’ (February 2020) looks at the accounting implications of the coronavirus for December 2019 year ends in the context of IAS 10, ‘Events after the reporting period’.
Other related information
ICAS, ICAEW and PRAG have published joint guidance on pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic (2 June 2020).
The Charities SORP-making body has published guidance for trustees and preparers of charity accounts looking at the potential impact of the control measures to contain COVID-19 on financial reporting by charities (‘Implications of COVID-19 control measures and charity financial reporting’) (23 March 2020). The guidance considers the implications for the trustees’ annual report, going concern and the alternative basis to going concern when preparing accounts under the SORP.
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