Impacts of the Coronavirus on Financial Reports
The 2019 novel coronavirus (COVID-19) outbreak poses a serious public health threat. It has interrupted the movement of people and goods throughout the world, and many levels of governments are implementing restrictions on individuals and businesses. These actions are likely to have a devastating impact on the global economies and businesses, which will have a flow-on affect to financial statements in future.
31 December 2019 financial statements
The impact of the spread of COVID-19 will be treated as a ‘non-adjusting subsequent event’ in 31 December 2019 financial statements. This is because the significant development and spread of COVID-19 did not take place until January 2020. As at 31 December 2019, only certain events and associated actions had taken place, such as the Wuhan Municipal heath Committee’s issue on 30 December 2019 of an urgent notice in respect of the virus. Although cases were reported to the World Health Organisation (WHO) on 31 December 2019, its announcement of COVID-19 as a global health emergency was not made until 31 January 2020 (following which national governments took action). In addition, significant measures taken by the Chinese government and by private sector organisations did not take place until early 2020.
While there will be no impairment adjustments recognised in these financial statements, appropriate disclosure needs to be made about the nature of the event and an estimate of its financial effect. Please refer to our International Financial Reporting Bulletin 2020/02 for more information.
Reporting periods ending on or after January 2020
Because of the declaration by the WHO of a global health emergency on 31 January 2020, COVID-19 financial reporting implications are no longer a ‘non-adjusting subsequent event’, and the impacts on transactions and balances recognised in financial statements are likely to be significant for many entities. This would include impairment issues relating to financial assets, non-financial assets, inventories, E&E assets, investments in associates and joint ventures, deferred tax asset balances, as well as triggering onerous contracts, and other lease accounting issues as a result of lease concessions. Going concern assessments for many entities will also be severely impacted by uncertainty over future forecasts, and there are a range of other potential financial reporting implications as well. Please refer to our International Financial Reporting Bulletins 2020/03, 2020/05, 2020/06, 2020/07 and 2020/08 for more information.