For many organisations, COVID-19 has significantly impacted their performance, financial position and cash flows, and management and directors are looking at ways to communicate the effects of the pandemic on their financial results in the Operating Financial Review, the Directors’ Report and in the financial statements.
Consideration needs to be given as to how organisations disclose these impacts to ensure that they are in compliance with both the Australian Accounting Standards and ASIC Regulatory Guide RG 230 Disclosing non-IFRS financial information and ASIC FAQs on COVID-19 implications for financial reporting and audit.
Consider how to disclose the impacts of COVID-19 carefully – ASIC has views on what approaches are acceptable.
The cessation of construction in Greater Sydney from 19 July 2021 and South Australia from 20 July 2021 are non-adjusting subsequent events unless they impact an organisation's going concern assessment. The probability of an extended and more restricted general lockdown in Sydney, new lockdown in Melbourne and South Australia in July 2021 should have been considered in the determination of cash flows used to measure assets and liabilities as at 30 June 2021.
A subsequent event that indicates the going concern basis of preparation is not appropriate is always an adjusting event, therefore organisations must consider the impact of this new information on their ability to continue as a going concern.
In the current environment, the threat of lockdowns is ever present and at 30 June 2021, organisations should have considered the probability of future restrictions across Australia when measuring assets and liabilities and undertaking going concern assessments given the largely unvaccinated population, the existence of the highly contagious delta variant and the virus elimination strategy adopted by many state governments across Australia.
If Superannuation funds have experienced material early redemptions as a result of members requesting access to their balances as a result of economic hardship due to COVID-19, as permitted by the Australian Federal Government’s economic response to the COVID-19 pandemic, they may consider including the following disclosures in the notes to their financial statements.
“Under the Australian Federal Government’s economic response to the COVID-19 pandemic, eligible Australian and New Zealand citizens and permanent residents can apply to withdraw up to $10,000 from their superannuation or retirement savings balance in the financial year ending 30 June 2020 and a further $10,000 from 1 July 2020 to 31 December 2020. Eligible temporary visa holders may also apply for a single release of $10,000 before 1 July 2020.
During the year ended 30 June 2020, the Fund received X number of eligible requests and paid a total redemption amount of $XXm. From 1 July to XXXXX, the Fund received Y number of eligible requests, and paid a total redemption of $Xm”
In addition, such funds should consider whether to include as part of their AASB 7 Financial Instruments: Disclosures liquidity risk management disclosures how their liquidity risk management policies have been implemented to address the increased levels of withdrawals and if there have been changes to their policies, the nature of the change.
The following are examples of how information showing the impacts of COVID-19 on the financial performance of an entity may be presented in documents other than the financial statements such as media releases and the operating and financial review:
Information presented as follows is likely to be misleading and is not an acceptable method for presenting the impact of COVID-19 in documents outside the financial statements:
Separate presentation through additional line items of income or expense, headings or sub-totals in the income statement of material items is appropriate only when it is necessary to an understanding of the organisation’s performance. In our experience, disclosures in the notes to the financial statements will generally be sufficient for many items that are material individually.
Where the effects of COVID-19 are pervasive, affecting a number of line items in the income statement, it may not be meaningful to present the impacts on the face of the income statement. Instead it may be more appropriate to disclose in the notes to the financial statements the total impact of the pandemic with a description of the circumstances and the income statement line items affected.
Where it is determined that separate presentation of COVID-19 impacts on the income statement is appropriate, an organisation’s current income statement presentation format, including the classification of expenses by either function or nature, will affect the way any COVID-19 impacts are presented on the face of the income statement.
Whether the impacts of COVID-19 are presented on the face of the income statement or in the notes to the financial statement, the organisation needs to develop and disclose an objective basis for identifying COVID-19 impacts in their accounting policy.
Any quantitative disclosures in the income statement or in the notes to the financial statements should also be accompanied by narrative disclosures of the impact, explaining the nature of the expenses, circumstances and how they are COVID-19 related.
The following presentation on the face of the income statement should be avoided:
Whether the impacts of COVID-19 are presented on the face of the income statement or in the notes to the financial statements, an organisation needs to develop and disclose an objective basis for consistently identifying any impacts separately disclosed.
The basis of identifying impacts as COVID-19 related and why they warrant separate disclosure should be included as a significant accounting policy.
Identifying income and expenses that relate to COVID-19 may be challenging as distinguishing between income and expenses that are part of normal operations versus those that are COVID-19 related may involve significant subjectivity. Income and expenses that relate to COVID-19 should be identified on a non-arbitrary basis.
In developing this accounting policy for identifying COVID-19 impacts, consideration should be given to:
Careful consideration should also be given to how separately identified COVID-19 impacts are described. If the description of ‘unusual’ or ‘exceptional’ is used, it should be reserved for items that justify a prominence greater than that achieved by separate presentation or disclosure.
Organisations should also consider whether amounts are truly unusual, for example increased cleaning costs. Compared to the previous year such costs may be unusual in amount, but on a go-forward basis it could become the new norm. Providing a narrative disclosure in such circumstances may provide users with more relevant information.