The ongoing COVID-19 pandemic is deeply affecting everyone’s day to day lives. As a result, this is also affecting virtually all businesses and their normal daily operations. The accounting and financial reporting processes are two viable aspects of your business which must maintain their effectiveness in order to maintain financial stability. The pandemic may have short and long term impacts on your financial statements, as well as the internal controls over financial reporting which have been put in place.
Listed below are some of the accounting issues which you and your business should be analyzing and which could potentially be affected by the pandemic:
- Management estimates
- Estimates are often based on management’s judgments and various inputs. These, of course, can be changing now due to changes in the current environment
- Long term assets and intangibles
- There could be impairment or asset recoverability issues that could affect the carrying value of these types of assets
- Fair value
- Just like estimates, fair value guidance is often based on judgments and inputs, as well as the general economy and marketplace
- Liabilities
- There could be potential modification and extinguishment of liabilities issues to address in the near term. Also, extensions for providing financial statements to lenders and loan covenants may need to be discussed
- Revenue recognition
- Variable consideration and collectability might be issues that have to be analyzed in light of your customers being affected by the pandemic
- Lease accounting
- Just like revenue, there could be collectability issues in regards to lease payments. In addition, lease agreements could be amended or replaced
- Risk and uncertainties, as well as going concern
- Entities need to analyze how the pandemic could affect their business, cash flows, etc. in the long term
- Subsequent event disclosures
- All of these factors could play a role in your current financial statement disclosures
More importantly, your internal controls, particularly those controls over financial reporting, are being affected. Here are some issues which you may be facing in regards to internal controls:
- Segregation of duties
- Key personnel might not be able to effectively execute the controls originally implemented
- Key information
- Information might not be flowing as smoothly and accurately as it did previously
- Remote work
- Are there data recovery and disaster plans in place
- Does the entity have the proper technology in place in order to properly operate in a remote workplace
- Communication – are there programs in place to ensure communication is apparent throughout your team. I.e. Microsoft Teams, Skype, etc.
- Communications with third parties
- Have you been in close contact with your CPA, attorneys, insurance brokers, bankers, as well as others who play an important role in your overall business
- Are data communications with third parties being done so in a secure environment
- Financial statement closing
- All of these issues will be affecting your financial statement closing process and ability to produce accurate, timely financial information
In addition, some other accounting relates issues you should be thinking about are:
- How do I address cash flow issues in the future?
- What kind of relief is available?
- What is customer demand of my goods or services going to look like?
- What is going to be the availability of goods or materials needed? Is there an alternative source? And if so, is there any additional cost or risk associated with such?
These are just some of the areas you should be thinking about now in terms of your accounting, financial statement and internal control processes. Reach out to us so that we can help assist you and your business navigate through these truly unprecedented times.