Covid-19’s impact on financial reporting

in Industry Insights, 18.03.2020

Covid-19 is extending its reach worldwide, and companies and governments alike are taking laudable measures to respond to the health, societal and economic threats posed by the virus. In this blog article, we would like to provide some guidance for businesses looking to assess the impact the virus will have on their operations, and the domino effect that this will have on financial reporting.

Translating the business impact of Covid-19 into disclosures

Companies around the world are experiencing severe business disruption as a result of the virus. Restrictions in production and trade are interrupting supply chains, and demand for certain products is falling, or increasing, as consumer needs and anxieties evolve. Such changes in circumstance may require additional or revised disclosures in current and future filings. Disclosures should include information that is material and relevant for investors as of the date of the periodic filing.

Coronavirus: assessing your degree of exposure

It is extremely difficult to assess and predict the true impact of the outbreak. However, companies can look at the degree to which their business is exposed to several key developments in order to define which impacts should be disclosed in the next reporting period.

The following questions may be useful in helping you assess your company’s degree of exposure:

  • If travel bans are enforced, how will this impact your board governance, meetings and the way you run your business?
  • Does your company directly or indirectly depend on supplies from affected regions? What are your contingency plans if routes are cancelled?
  • Do you already see, or anticipate, an impact on the sales side?
  • How will your operations be affected if you employees are infected?
  • How vulnerable is your company to market price fluctuations? How will your financial stability be impacted from further stock market declines and restricted funding?
  • Do you already see an impact on your company’s cash flows?
  • Does the government in your home country offer financial support to struggling business? Is your company eligible?

Covid-19:  disclosing the impacts in financial reporting

According to current market practice, if your reporting date is 31 December 2019, then the impacts of the Coronavirus should be disclosed as “non-adjusting events”. It is done this way because changes in business activities and economic conditions result from events that occurred after the balance sheet date — this includes but is not limited to actions taken by the government and private sector. If your reporting period ends after 31 December 2019, accounting impacts will likely be recognized.

Just as companies are affected by the economic impacts of the outbreak in different ways and to different degrees, depending on their activities, financial reporting can also be affected in a myriad of ways, both directly and indirectly. Therefore, companies are encouraged to maintain close communication with their board of directors, external auditors, legal counsel and other service providers as the situation progresses.

Stay tuned as we will publish more specific information on the impacts of the outbreak on your financial reporting on this website soon.

You can find part two of this series on adjusting and non-adjusting events here.

You can find part three of this series on going concern here.

You can find part four of this series on estimated credit losses (ECL) here.


This article has been written by Melanie Goetz.

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