Accounting for COVID-19 support schemes

7 May 2020: a webcast from ICAEW’s Financial Reporting Faculty outlines how to account for a variety of the support schemes being made available to businesses during the coronavirus pandemic.

The UK’s accounting standards are not written with specific scenarios in mind, and certainly not those of the exceptional range of support packages being made available to businesses at the moment. Accounting standards are instead principles–based, enabling them to be applied to a wide range of circumstances. When new scenarios come along, applying the relevant standard is not always straightforward and generally accepted accounting practice can take time to emerge. 

Presented by independent consultants John Selwood and Peter Herbert, the latest Financial Reporting Faculty’s webcast is aimed at those preparing accounts under both FRS 102 and FRS 105. Selwood and Herbert covered the accounting considerations for rent and business rates holidays, the Coronavirus Job Retention Scheme (CJRS), the Coronavirus Business Interruption Loan scheme (CBILS) and more.

Starting with rent and rates holidays, Selwood explained that although business rates holidays result in a straightforward reduction in the expense, rent holidays are more complex. Rent holidays are generally not a lease incentive, unless the landlord also renews the lease at the same time. They are instead a lease modification, an area not specifically addressed by FRS 102. With reference to accounting manuals, Selwood indicated that the current consensus on lease modifications seems to be to spread the benefit of the modification over the remainder of the lease.

The CJRS, or furloughing scheme, is a government grant for which the accruals method in Section 24 of FRS 102 seems most appropriate. A number of non-government grants are also available to entities in certain sectors. Although Section 24 of FRS 102 applies to government grants, without alternative guidance the same principles can be applied to non-government grants. However, Herbert warned that entities must first be clear on whether the cash received constitutes a grant, or a loan. 

The scheme for which clear consensus has yet to emerge is CBILS. Although it seems clear that the Business Interruption Payment, which covers the first 12 months of interest and lender-levied fees, is paid directly by the government to the lender, there is less clarity as to whether the borrowing entity retains any contractual liability for these costs that will need to be reflected in the accounts.

Throughout all of these areas though, there is one adage that is agreed on: if unsure, disclose some more.

To learn more about the issues involved view the webcast here.

You can also see how ICAEW can support you during these challenging times by visiting our Coronavirus hub. For further resources on financial reporting during the COVID-19 pandemic, our dedicated Coronavirus and financial reporting hub page details guidance produced by ICAEW and external sources, together with plans for future guidance.