Potential effects of the coronavirus outbreak on 2020 reporting periods and onward
19 March 2020
Coronavirus/COVID-19 is having an unprecedented impact on entities in nearly every sector and industry worldwide. For entities with reporting periods ending after 31 January 2020, the effects of the outbreak will have to be considered in impairment calculation, revenue recognition, going concern disclosures and much more.
No significant development nor spread of the coronavirus did not take place until January 2020. As at 31 December 2019, only certain events and associated actions had taken place such as the Wuhan Municipal Health Committee’s issue on 30 December 2019 of an urgent notice in respect of the virus. However, although cases were reported to the World Health Organisation on 31 December 2019, its announcement of coronavirus as a global health emergency was not made until 31 January 2020 (following which national governments took action). In addition, significant measures taken by the Chinese government and by private sector organisations did not take place until early 2020.
On this basis, the effects of the coronavirus were generally a ‘non-adjusting event’ (IAS 10.10-11), and therefore forecasts, projections and associated assumptions used in preparing financial statements as at 31 December 2019 would reflect either little or no change as a result of the coronavirus outbreak.
For reporting periods beginning on or after 31 January 2020, the effects of the coronavirus would need to be incorporated into the preparation of financial statements.
The effects of the coronavirus may be very wide spread, and relate to many industries; they are not limited only to entities operating directly in the travel and tourism industry (e.g. airlines, tour operators, etc.). Coronavirus may affect entities in nearly every sector, due to the following impacts:
- Reduced consumer demand for goods and services due to lost income and/or restrictions on consumers’ ability to move freely;
- Lack of investment in capital improvements and construction reducing demand for many goods and services;
- Reduction in market prices for commodities and financial assets, including equity and debt instruments; and
- Disruption of global supplies chains due to restrictions placed on the movement of people and goods.
The financial reporting implications for entities may be similarly broad, and the precise effects will depend on the facts and circumstances of each entity. As time elapses and the effects of the outbreak change and evolve, it may become difficult to distinguish which information and facts and circumstances should be incorporated into measurement as at period end and which should result in potential subsequent event disclosure.
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