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Assessing the impact of COVID-19 on the accounts

30 April 2020: ICAEW’s Financial Reporting Faculty has produced a checklist to help you determine how the spread of COVID-19 might affect financial statements prepared in accordance with FRS 102.

In response to the COVID-19 pandemic, the government has launched a number of initiatives to help businesses survive, and companies have faced hard choices in how to run their operations. The effect on the accounts can be far-reaching and will depend heavily on the facts and circumstances of the company, the timing of events and the availability of information at the time the accounts are finalised.

With these effects in mind, the aim of ICAEW’s Checklist: implications of COVID-19 on the preparation of accounts under FRS 102, is to provide an overview of how the new environment we find ourselves in, and the actions companies may have taken in response, will affect the numbers and the disclosures required.

Going concern assessments, for example, may be more challenging for management at present, given the level of economic and social uncertainty. Management will need to assess whether the business is a going concern, taking account of all information available up to the date the accounts are authorised for issue. 

In circumstances where a going concern assumption is not considered appropriate, adjustments may be necessary to the carrying amounts of assets and liabilities in the financial statements. In all other respects, the amounts recognised in the accounts should reflect the conditions which existed at the balance sheet date. This is explored further in the faculty’s guide Coronavirus: how to distinguish adjusting from non-adjusting post balance sheet events.

There is a general principle that the carrying amount of any asset must not exceed its recoverable amount – i.e. the benefits it is expected to generate. There may be new or changed liabilities as contracts are modified and restructuring plans put in place. The company may be eligible for some of the government initiatives such as the Coronavirus Job Retention Scheme or the Coronavirus Business Interruption Loan Scheme. The checklist sets out some of the factors to consider when determining the appropriate accounting treatment, disclosure, and where more guidance is available.

The document is not a comprehensive list and the Financial Reporting Faculty continues to develop further guidance to assist members during these exceptional times. The Coronavirus and financial reporting hub page has details of guidance produced by ICAEW and externally, together with plans for future guidance.

For further resources on financial reporting during the COVID-19 pandemic, please see ICAEW's designated hub.