Covid-19 continues to significantly impact the global economy. As local markets start back up and businesses resume their activities, the challenge emerges of assessing, quantifying and disclosing the pandemic’s actual impact on financial statements.
In this blog article, we have gathered some relevant insight on how to prepare your financial statements in the aftermath of Covid-19.
What are the considerations for interim financial statements?
The 2020 interim period is the first reporting period for which financial statements will reflect the impacts of the Covid-19 outbreak.
Usually, interim financial statements focus on changes since the last annual financial statements. Companies are mainly required to provide an explanation of events and transactions that are significant to understanding any changes in financial position and performance.
Preparing 2020 interim financial statements, however, will likely involve more effort than the usual update due to the rapidly changing economic outlook. Investors and other stakeholders can expect to see information above and beyond what is typically disclosed.
The KPMG expert blog What is the impact of Covid-19 on interim financial statements? highlights the potential impacts of Covid-19 per topic, e.g. assets and liabilities or income and expenses.
On 20 May, to support the issuers of financial statements, the EU regulator, European Securities and Markets Authority (ESMA) issued a public statement addressing the implications of the Covid-19 pandemic on the half-yearly financial reports of listed issuers. The public statement provides recommendations for each area of focus identified by ESMA.
ESMA and national regulators will monitor and supervise the application of the IFRS® Standards as well as other relevant provisions outlined in the statement. National authorities will incorporate them into their examinations, and corrective actions will be required where appropriate. The findings will be also considered when setting the 2020 enforcement priorities for annual financial statements. Therefore, we strongly recommend that companies incorporate the new requirements now.
Another valuable resource to take into account is the thematic review of company disclosures related to Covid-19 published by the UK Financial Reporting Council (FRC). The report highlights examples of best practices and opportunities for improvement in the areas of going concern, alternative performance measurements, presentation of primary statements, ECL, significant judgments, impairment of non-financial assets, as well as other items.
Although the topics included in the review are relevant at a UK level, regulatory bodies in other jurisdictions are also likely to pay particular attention to disclosures in many of the same areas. The list is not exhaustive, however, and other national regulators may have additional areas of focus.
What are the considerations for year-end financial statements?
It was clear from the beginning of the Covid-19 pandemic that most entities are likely to be impacted, either directly or indirectly. Now, midway through a year of increasing economic uncertainty and risk, significant financial reporting implications are expected by most financial statement issuers.
KPMG’s experts have developed guidance to help you understand the accounting and disclosure implications for each technical topic. The KPMG Covid-19 resource center focuses on the impacts for 2020 and is continually updated as significant accounting and reporting issues arise. We encourage you to bookmark this page and check back frequently for updates.
The resource center currently contains Q&As relating to a range of topics, such as:
- Are assets being carried at appropriate amounts?
- What are the key impacts on financial instruments?
- What is the impact on revenue-cycle accounting?
- Have changes been made to lease contracts?
- How should Covid-19 impacts appear on the income statement?
The resource center also contains Covid-19 related podcasts, videos and blog posts from KPMG’s international technical experts.
What are KPMG Luxembourg’s experts on the IFRS Standards saying?
KPMG Luxembourg has developed a local webpage, Tackling Covid-19 together, that aims to help you understand and respond to rapidly evolving business challenges. Bookmark this page as new updates specific to Luxembourg are added regularly.
Since March 2020, KPMG Luxembourg’s experts on the IFRS Standards have published a series of blogs that help you better understand potential accounting and disclosure implications for your company, and the actions management can take now.
You can find those blogs below:
- Covid-19’s impact on financial reporting READ
- Covid-19’s impact on financial reporting: adjusting and non-adjusting events READ
- Covid-19’s impact on financial reporting: going concern READ
- Covid-19’s impact on financial reporting: estimated credit losses (ECL) READ
- IFRS 15 and Covid-19: what to consider when it comes to revenue recognition READ
- IFRS 15 and Covid-19: don’t roll the dice on revenue estimates READ
This article has been written by Loredana Plesca.
Stay tuned as we publish further information regarding the specific impacts of Covid-19 on your financial reporting.