Financial Reporting implications of Coronavirus

This page was last updated on: 10 May 2021

Companies and their advisors will need to consider how the spread of coronavirus will affect their business and how these effects should be reported in their financial statements and directors report. The extent of the risk arising and the impact it may have will vary depending on the company’s specific circumstances and exposure. The company’s year-end date, and the information available from the evolving situation will also affect how the impact will be reported in the financial statements.

Over the past number of months, much has been issued in terms of advice from regulators, and commentary, regarding various financial reporting considerations related to the spread of coronavirus. We have assembled below some information that we have come across that may be of assistance to members.

Commentary should not be taken as advice or as a comprehensive analysis of all aspects. This is an evolving situation. When reading information at the links below, due care should be taken of the date of issue and any developments in the interim that may not be reflected in the material published, such as updated statements from regulators etc. There is also a need to be cognisant of the accounting framework being applied by an entity (e.g. FRS 102, IFRS etc.), and the jurisdiction, in considering the relevance of any of the information below.

From the accounting standard setters/regulators:

FRC
The FRC has published Consolidated Covid-19 guidance for companies (4 December 2020), superseding all previous FRC guidance for companies.  In this paper, the FRC highlight some key areas of focus for boards in maintaining strong corporate governance and provide high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting. FRC Covid-19 guidance is regularly updated and can be found in the FRC’s COVID-19 Response section on their website.

Further, the FRC and FCA issued a joint statement (27 January 2021) reminding companies that extended financial information timelines continue to apply. The FCA and FRC remind companies of the measures that remain valid and which provide some flexibility. Recognising the heightened challenges and in line with their previous statements, the FCA and FRC “…encourage all stakeholders including in particular boards of listed companies to (1) re-familiarise themselves with the measures and (2) use them in light of any resourcing constraints in finance and/or audit teams to ensure the quality of reporting is not compromised during this period.”

Following a consultation period during the summer, the FRC issued amendments to UK and Ireland accounting standards, both reflecting  topical issues (19 October 2020):

• ‘Amendments to FRS 102 and FRS 105 – COVID-19-related rent concessions’ – which sets requirements for recognising changes in operating lease payments arising from COVID-19-related rent concessions on a systematic basis over the periods the change in lease payments is intended to compensate.  These amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted; and
• ‘Amendments to FRS 104 – Going concern’ – which clarifies and enhances requirements relating to the going concern basis of accounting in respect of interim financial reports.  These amendments are effective for interim periods beginning on or after 1 January 2021, with early application permitted.

Further, on 20 April 2021, the FRC issued for comment, an Exposure Draft that proposes to extend the application period of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic by one year. FRED 78 proposes that requirements originally introduced into FRS 102 and FRS 105 in October 2020 (mentioned above) apply to rent concessions that reduce only lease payments originally due on or before 30 June 2022, provided the other conditions for applying the requirements are met. The FRC says it expects to finalise these amendments in the first half of the year.

IAASA
IAASA has published an Information Note 'IAS 36 Impairment of Assets – information requests from IAASA' (30 March 2021). IAASA note that given the economic uncertainty caused by COVID-19, IAASA expects that issuers will incorporate higher levels of uncertainty into their impairment testing assumptions, and in these circumstances, issuers should recognise the importance to users of financial reports of high quality disclosures regarding impairment reviews. To assist issuers in providing useful impairment disclosures, IAASA is publishing this Information Note.

IAASA and the Central Bank of Ireland have issued news items (2 February 2021) clarifying expectations in relation to the European Single Electronic Format (ESEF) Regulation taking into account the one-year postponement.

IAASA has published an Information Note highlighting the accounting treatment applied by companies impacted by COVID-19 (03/11/20).  IAASA is calling on companies to redouble their efforts to provide high quality, company specific disclosures of the impact of COVID-19 in their accounts so as to provide useful information to the users of those accounts.

IAASA has published its annual Observations paper (22 September 2020) which highlights some key areas that warrant close scrutiny by those preparing, approving and auditing 2020 financial statements in the upcoming reporting season including: the pervasive impact of the COVID-19 pandemic on the recognition, measurement, presentation and disclosure of income, expenses, assets and liabilities in companies’ financial statements; and the challenges and uncertainties facing companies from Brexit. IAASA note that while it’s remit extends only to companies with securities admitted to trading on a regulated market (principally the Main Market of Euronext Dublin – the Irish Stock Exchange), the topics identified in the 2020 Observations paper could usefully be taken into consideration by a much wider range of companies with the aim of producing high quality financial reports more generally and increasing the transparency and usefulness of financial statements for users.

IAASA has published news articles noting the issuing of various ESMA COVID related statements during 2020 and these are available on the IAASA website. Included is the ESMA annual priorities statement ‘European common enforcement priorities for 2020 annual financial reports’, noting that in setting these 2020 priorities, ESMA and European accounting enforcers have identified the need to provide transparency regarding COVID-19 which, due to its pervasive nature, is expected to affect many areas of 2020 annual financial reports published by companies (28 October 2020).  

International Accounting Standards Board (IASB)
On its webpage ‘The coronavirus and the Foundation's work’ the IASB outlines ways it is supporting stakeholders, such as reconsidering timelines for projects, and supporting the application of IFRS Standards during this period of enhanced economic uncertainty arising from the covid-19 pandemic. In terms of supporting application of IFRS Standards, the IASB note that they have:

• Published educational material on the application of IFRS 9 Financial Instruments (27 March 2020).
• Published educational materials on the application of IFRS 16 Leases (10 April 2020).
• Issued an amendment to IFRS 16 Leases ‘Covid-19-Related Rent Concessions - Amendment to IFRS 16’ to make it easier for lessees to account for covid-19-related rent concessions while still providing useful information about their leases to investors (28 May 2020). On 31 March 2021, the Board extended by one year the application period of the amendment. 
• Published an article by Board Member Mary Tokar and Technical Staff Member Sid Kumar, who give an overview of covid-19-associated financial reporting considerations for preparers, auditors, investors and regulators (28 October 2020).
• Published educational material on going concern (13 January 2021).

Amendment to IFRS 16 Leases ‘Covid 19-Related Rent Concessions’ was endorsed by the EU on 9 October 2020 and published in the Official Journal of the European Union on 12 October 2020.
EFRAG has submitted its Endorsement Advice Letter relating to 'Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)' for use in the EU and EEA to the European Commission, recommending its endorsement (2 April 2021).
The UK Endorsement Board secretariat has published a draft UK Endorsement Criteria Assessment on the IASB’s amendment ‘Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)’, for stakeholders’ views to inform its recommendation to the BEIS Secretary of State to adopt the Amendment in the UK (14 April 2021).

From professional bodies:

The Institute has published an article ‘Accounting and disclosure considerations for Covid-19-related Government Supports under FRS 102’ (14 April 2021). In view of the supports being made available to business by Governments in both the UK and Ireland to help them cope with the pandemic, the purpose of this article is to remind members of the requirements of FRS 102 on accounting for and disclosing government grants and disclosing government assistance.

The Institute's article ‘Going Concern considerations for members preparing or auditing financial statements in the context of COVID-19' (23 April 2020), may assist members that are preparing and auditing financial statements and serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective.

The Institute has run a number of COVID related webinars, recordings of which are available on the Professional development webpages here.

The ICAS and ICAEW websites have dedicated Coronavirus pages which include material on financial reporting.

Material from some of our member firms or their international networks:

Several of the Institute’s member firms have produced material on the financial reporting implications of Coronavirus. The following is a selection:

Deloitte’s ‘Need to know - Accounting considerations related to the Coronavirus 2019 disease for FRS 102 reporters’ (updated 21 January 2021) discusses certain key FRS 102 accounting considerations related to conditions that may result from the COVID‑19 pandemic. Their ‘Need to know — Accounting considerations related to the Coronavirus 2019 disease’ (updated 11 November 2020) discusses accounting considerations related to the Coronavirus 2019 disease for IFRS and FRS 101 reporters, and a series of webcasts discusses certain key IFRS accounting considerations related to conditions that may result from the pandemic. A short article ‘Financial Reporting 2020 – An ‘Exceptional’ Year’ (Financial Reporting Brief November 2020) comments on the challenges of reporting in a period of great uncertainty brought about by the Covid-19 pandemic, and sources of guidance available to support and assist with the financial reporting process. An article in the January 2021 Financial Reporting Brief ‘Managing Liquidity – ‘Cash is King’’ includes consideration of how a company ‘tells its story’, with reliable presentation and disclosure that is transparent and understandable.

EY's publication ‘Applying IFRS: IFRS accounting considerations of the coronavirus pandemic (updated April 2021)’ (30 April 2021) provides accounting considerations when addressing the financial effects of the coronavirus pandemic in the preparation of annual or interim IFRS financial statements. Their ‘Responding to Covid-19’ resource centre includes an article ‘IFRS accounting considerations of the COVID-19 outbreak’ (24 March 2020), summarising some of the key impacts for IFRS reporters, and an article ‘Three key issues facing interim reporters in 2020’ (9 June 2020) looking at impairment, going concern and fair value measurement. The articles provide links to different earlier versions of the above EY publication, dealing with 2019 and 2020 period ends. 

KPMG’s Resource centre on the financial reporting impacts of coronavirus includes FAQs on potential accounting and disclosure implications for companies. This resource centre focuses on IFRS standards and the potential financial reporting impacts for 2020 period ends. Also available in the resource centre is KPMG’s suite of IFRS annual disclosure checklists and illustrative financial statements (for annual reporting periods commencing on or after 1 January 2020), which includes an additional ‘Covid-19 supplement’ illustrating additional disclosures that entities may need to provide on accounting issues arising from the pandemic. It incorporates disclosures around going concern, valuation and impairment of non-financial assets, financial instruments, government assistance, rent concessions etc. (September 2020).

PWC’s IFRS based ‘Accounting implications of the effects of coronavirus: PwC In depth’ considers the impact on financial statements for periods ending after 31 December 2019 of entities whose business is affected by the virus, and FAQs and illustrative examples (which are added to as practice emerges), demonstrate the practical application of the principles of this guidance. Their webpages  include articles such as ‘COVID-19 and impairment considerations for business’ (2 November 2020),  which gives some considerations for impairment exercises required as part of the FY20 financial reporting process under IAS 39, IFRS 9 and FRS 102, while ‘COVID-19: Financial reporting implications of the coronavirus’ (9 April 2020) looks at some key considerations across IFRS and UK and Ireland GAAP for Irish companies dealing with the impact of COVID-19 on their financial reporting. A webcast on the Financial Reporting implications arising from COVID-19 (18 June 2020) explores the impact of COVID-19 across a number of topic areas under IFRS and FRS 102, including impairment, going concern, disclosures and half-year reporting, together with insights and expectations from IAASA in relation to financial reports of listed companies.

Other related information

The Pensions Research Accountants Group (PRAG) has published updated guidance on pension scheme financial statements and going concern (December 2020). Publication of the PRAG guidance follows the earlier publication of joint guidance by ICAS, ICAEW and PRAG on Pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic (May 2020).

The Charities SORP-making body has published guidance for trustees and preparers of charity accounts looking at the potential impact of the control measures to contain COVID-19 on financial reporting by charities (‘Implications of COVID-19 control measures and charity financial reporting’) (23 March 2020). The guidance considers the implications for the trustees’ annual report, going concern and the alternative basis to going concern when preparing accounts under the SORP. The Charities SORP-making body has made a new SORP example Trustees’ Annual Report and accounts available on its website, noting that this is the first (of two) examples (‘SORP examples illustrating the impact of the COVID-19 pandemic: England and Wales’), and that this example illustrates the impact of the pandemic on a grant-maker and the effect on both its income and activities.

Chartered Accountants Ireland can accept no responsibility for the content on any site that is linked to from the Institute website. Links are provided in good faith for the potential support of members and students.