COVID-19 and post-balance sheet events
21 April 2020: ICAEW’s Financial Reporting Faculty has recorded a 20-minute webcast outlining key considerations for preparers of financial statements on the subject of post-balance sheet events.
Deciding whether events after the reporting date provide additional evidence of conditions that existed at the end of the reporting period (an adjusting event) or arose after the end of the reporting period (a non-adjusting event), requires a significant amount of judgment.
In these exceptional times, uncertainty about when COVID-19 began to affect businesses makes this task particularly challenging for financial statement preparers.
To help preparers ensure events after the reporting date are accounted for appropriately, ICAEW’s Financial Reporting Faculty has recorded a 20-minute webcast on the topic, which is available to all on this link. Suitable for both UK GAAP and IFRS reporters, Steve Brice, technical partner at Mazars, outlines key considerations to help assess whether COVID-19 should be treated as an adjusting and non-adjusting event.
With only a handful of ‘pneumonia cases of unknown cause’ that occurred in Wuhan, Hubei Province, China before 31 December 2019, there is a consensus between audit firms and regulators that COVID-19 represents a non-adjusting event for 31 December 2019 year-ends, explained Brice.
The focus for these preparers should, therefore, be disclosure and explaining to users of the financial statements the material adjustments impacting assets and liabilities in the next financial year. The one exception to this, of course, will be whether the COVID-19 outbreak calls into question the entity’s going concern assumption.
For reporting period dates in 2020, the answer is not so clear and will depend on individual facts and circumstances. Unlike December 2019 year-ends, there is no consensus on the appropriate date when COVID-19 became a current period event that requires ongoing assessment during the post-balance sheet period.
It will be necessary for entities to consider facts and circumstances, specific to their operations, to judge when they should take account of the impact of the effect of COVID-19 in their 2020 financial results. Expanding on this point, Brice stressed the importance of exercising caution, as well as discussing and agreeing on the proposed accounting treatment with the entities’ auditors.
This Bitesize Briefing is one of a series of resources created by the Financial Reporting Faculty on COVID-19. Dedicated financial reporting-related resources, including links to guidance issued by regulators and other external sources, is available through ICAEW’s Coronavirus hub.