Preparation of 2019 financial statements: COVID-19 considerations.

It is appropriate for entities to consider the impact of the pandemic on accounting conclusions and related disclosures. Entities may need to assess whether the impact of COVID-19 has led to impairment of any assets.

In its IFRS in Focus section, Deloitte publishes the report Accounting considerations related to Coronavirus disease 2019, the purpose of which is to highlight some key issues for entities to consider when preparing their IFRS financial statements for periods ending on or after December 31, 2019.

Accounting considerations

Deloitte indicates that as COVID-19 continues to spread globally, it may be appropriate for entities to consider the impact of the outbreak on accounting conclusions and disclosures related, but not limited to:

–Impairmentof non-financial assets (including goodwill).

– Inventoryvaluation.

–Provisionfor expected losses.

–Measurementat market value.

–Provisionsfor onerous contracts.

–Non-performance ofagreements.

– Goingconcern.

– Liquidity riskmanagement.

–Eventsafter the reporting date.

– Hedgingrelationships.

– Insurancerecoveriesrelated to business interruptions.

– Terminationbenefits.

– Performance-based compensationtermsand modifications.

– Contingencyconsiderationsfor contractual agreements.

–Modificationsto contractual agreements.

– Taxconsiderations(especially recoverability of deferred tax assets).

Impairment of non-financial assets (including goodwill).

“entities may need to assess whether the impact of COVID-19 has led to the impairment of any assets.”

In Deloitte’s view, entities may need to assess whether the impact of COVID-19 has led to impairment of any assets.

Their financial performance, including estimates of future cash flows and earnings, may be significantly affected by the direct or indirect impact of recent and ongoing events.

IAS 36 – Impairment assessment requires entities to perform impairment tests (such as estimating the recoverable amount of an impaired cash-generating unit) at the end of each reporting period when there are indicators that the cash-generating unit may be impaired.

Indicators of impairment include, but are not limited to, significant changes with an adverse effect on the entity that have occurred in the period or will occur in the near future in:

–Themarket or economic environment in which the entity operates.

– Themannerin which an asset is used or is expected to be used (for example, an asset in disuse, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the expected date, etc.).

As a result of the impact of COVID-19, some entities may need to perform impairment assessments on assets (in addition to the requirement to perform an impairment assessment at least annually on goodwill and intangible assets with indefinite useful lives).

Fair value measurement

Items that require measurement at fair value, such as certain financial instruments and investment properties, should reflect the perspective of market participants and market information at the measurement date under current market conditions.

“Entities should pay attention to fair value measurement based on unobservable inputs (in some cases, referred to as Level 3 measurement) and ensure that the unobservable inputs used reflect how market participants would reflect the effects of COVID-19, if any, on their expectations of future cash flows related to assets or liabilities at the reporting date,” concludes Deloitte.

Source: Actualize