This website uses cookies. More information about the use and settings of cookies is available here.

Impact of COVID-19 on financial reporting

The effects of the COVID-19 spring wave are mostly already visible in the financial statements, but it is still important to carefully consider some important issues when preparing the annual report.

 

IMG Numeri’s accountants understand that the client does not have to be and cannot be familiar with all the rules for preparing financial statements. Therefore, we analyze our client’s balance sheet and income statement from the point of view of the accountant and pay attention to places that need the assessment of the company’s management. In most cases, such issues relate to the accounting policies for the recognition of current and non-current assets.

Events after the reporting date

In preparing the annual report, it is necessary to analyze whether events have occurred after the end of the reporting period that are treated as a corrective event or a non-corrective event.

In the first case, it is an event that already existed at the end of the reporting period, and such events must be taken into account as of the reporting date. For example, if, as of 31.12.2020, there are outstanding invoices from a company that goes bankrupt at the beginning of 2021. In this case, the event is considered to have already existed at the reporting date, and the receivable must be written down as at the reporting date.

In the second case, it is an event that did not exist at the end of the reporting period but occurred after the end of the reporting period, but before the submission of the annual report. If the effect of such an event is significant, its effect must be explained in the notes. For example, if new restrictions are introduced in 2021 before the submission of the annual report to prevent the spread of the virus, which will significantly affect the future of the company, their nature and impact must be explained in the notes to the annual report.

Ongoing concerns

As the COVID-19 crisis period has been going on for a long time, the issue of the company’s business continuity is also becoming more and more important.

When preparing the annual report, the company’s management must assess the company’s sustainability for at least 12 months from the reporting date. If there is significant uncertainty about the basis of the ongoing concern, management is required to disclose the circumstances that cause the uncertainty in the notes to the financial statements. If the company has started winding up, or it is probable that it will start or will be forced to start winding up within the next 12 months, the report will be prepared based on the principles of preparation of the liquidation report.

Therefore, given that what is happening around us changes over the days, we recommend not to delay the submission of the annual report, but to agree with the accountant and submit the report as soon as possible. In this case, it is less likely that events will occur in the meantime that would require reporting in one way or another. However, there is still a need to critically assess whether there is significant uncertainty about an ongoing concern.

Call +372 686 7110 or e-mail numeri@numeri.ee us for information today!