Initially reported to the World Health Organisation as an unknown virus in late December 2019, COVID-19 continues to cause extraordinary disruption to the global economy. Uncertainty about the immediate outlook for many companies has increased sharply. This has a consequence for companies and their Boards as they contemplate reporting financial results in the coming months.
In many ways, the circumstances surrounding COVID-19 are similar to the considerations for climate risk disclosures in financial reporting which were described in our previous article at the following link:
And given the scale of COVID-19 and the wide-ranging implications for businesses, all financial report preparers should consider the impact on financial reports arising from this significant global risk. In the meantime, the extent of the risk and the degree to which it may crystallise depends on companies’ specific business circumstances and we cover several key considerations below:
The key considerations for financial reporting preparers as a result of COVID-19 include:
- Assess whether the financial impacts of COVID-19 are material to the entity, such as:
- Asset impairments;
- Expected credit losses for loans and other financial assets;
- Material uncertainties that cast significant doubt on the ability to continue as a going concern, extending to future costs and revenues and cash flow liquidity.
- Consider adjusting financial statements, including circumstances where events continue to develop after the end of the reporting period i.e. subsequent events reporting; and
- Determine whether any additional disclosures may be required by the entity.
Additionally, Company Boards should consider the following measures upon assessing COVID-19 implications to the financial report:
- Evaluate whether those charged with governance have performed adequate risk assessment procedures for the impact of COVID-19, including a heightened awareness of the possibility for inadvertent errors;
- Consider whether financial reporting disclosures are sufficient and adequate;
- Assess whether travel bans will impact your personnel, inventory supply chains or key staff potentially causing continued business interruption;
- Enquire any new Government assistance applicable to the business, including wage subsidies and financial relief; and
- Perform assessment of going concern basis of accounting using the latest available data.
Extensions for Lodgement of Company Information
Recently, Australian Government Regulators extended the deadlines for lodgement of Company Tax Returns and Financial Reports. In terms of financial reporting lodgements for:
ASIC has extended the deadline for unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act 2001 by one month for balance dates from 31 December 2019 to 31 March 2020. However, ASIC will continue to assess the impact on financial reporting for balance dates after 31 March 2020. For listed entities, ASIC will consider applications to extend reporting deadlines for individual entities in appropriate circumstances and has adopted a two-month ‘no-action’ position for entities with a financial year end of 31 December 2019 that do not hold their AGM by 31 May 2020.
- Charities & Not-for-profit Organisations:
ACNC has approved blanket extensions to charities whose returns are due between 12 March and 30 August 2020. Charities will now be required to submit their returns by 31 August 2020. While this advice will be monitored as the situation progresses, eligible charities will have their due date updated on the ACNC Charity Register.
We understand that many organisations are facing unprecedented challenges. The implications for our economy have been deep and immediate and we remain mindful of the business and personal uncertainty that lies ahead. As more information continues to emerge, the required financial report disclosures will likely change over time. In the meantime, companies will need to monitor developments to ensure that meaningful disclosures are being prepared.
We encourage you to review the implications of COVID-19 to your financial reporting obligations and if you require further clarification or additional guidance, please contact your local Accru Audit and Assurance advisor.