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The financial reporting implications of coronavirus

As coronavirus continues to spread and more information comes to light about the nature of the virus and its impact, companies with 2019 and early 2020 year-ends need to consider how it affects their business and how the effects should be reported in the accounts. This guide is primarily aimed at those entities preparing accounts in accordance with FRS 102.

Coronavirus - financial reporting implications

This guide is primarily aimed at those entities preparing accounts in accordance with FRS 102.

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As at 31 December 2019 China had alerted the World Health Organisation (WHO) of several cases of an unusual form of pneumonia in Wuhan. However, substantive information about what has now been identified as coronavirus (or COVID-19) only came to light in early 2020.

The general requirement is that the balance sheet reflect the position at the end of the reporting period. Therefore for companies with a 31 December 2019 year-end, the emergence of coronavirus is a non-adjusting event.

Companies with 2020 year-ends will need to consider the timelines more carefully to assess the conditions which existed at the relevant balance sheet date.

An entity that has close ties with areas severely affected by the COVID-19 virus, or is in other ways adversely affected (for example, the impact on businesses involved in tourism), may need to consider additional disclosures of any material uncertainties which cast significant doubt over its ability to continue as a going concern. In some circumstances it may be necessary to consider whether it is appropriate to prepare the accounts on a going concern basis.

The nature of any material non-adjusting event and an estimate of its financial effect must be disclosed by way of note. Therefore, directors will need to consider the impact of the COVID-19 virus on the business, which will vary according to the specific circumstances in which it operates.

As we progress through 2020, more information is coming to light on the scale and impact of coronavirus. There may be a greater degree of judgement required when identifying the conditions at the balance sheet date, and therefore assessing whether the developments are adjusting or non-adjusting. A business that has been – or is likely to be – adversely affected by the COVID-19 virus will need to review all areas of the accounts that are subject to judgement and estimation uncertainty.

Companies should also consider whether to refer to the possible impact of coronavirus in their reporting of principal risks and uncertainties in the strategic report. When mitigating actions can be taken, these should also be reported alongside the description of the risk itself.