As the impact of the pandemic (COVID-19) continues to evolve, it presents significant challenges for the companies across sectors. Stringent preventive and restrictive measures to contain the pandemic have led to supply chain disruption, reduction in demand for goods, non-availability of personnel, reduced sales and profits, to name a few. In the wake of uncertainty being posed by the pandemic, it becomes imperative for companies to provide timely and adequate information to investors and various stakeholders about the impact of COVID-19 on their business operations, performance, financial position and future prospects. These disclosures could form part of the company’s financial statements, board’s report, management’s discussion and analysis section of the annual report and disclosures to stock exchange(s) as part of material events. Various regulators in the form of advisories/guidance have also urged companies to communicate all information available about the impact of the pandemic on the company along with management responses including measures taken to mitigate them in a cogent manner. In this edition of Accounting and Auditing Update (AAU), we cast our lens on some of the key areas to be considered by companies while disclosing the impact of the pandemic within or outside financial statements.
While COVID-19 has affected almost all the major sectors of Indian economy to varying effect, banks, Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs) have been significantly impacted especially in terms of their exposure to almost all major sectors of the Indian economy. To mitigate the burden of debt servicing brought by disruptions on account of COVID-19 and to ensure continuity of viable business, the Reserve Bank of India (RBI) has introduced regulatory and development measures including moratorium on term loans/deferment of interest on working capital loans and related relaxations in asset classification and provisioning norms for those operating in financial services sector. We have analysed the financial results of 12 companies (eight NBFCs and four HFCs) for the year ended 31 March 2020 listed on the National Stock Exchange (NSE). Our article on the topic provides the impact of COVID-19 on the Expected Credit Loss (ECL) provision recognised by these companies.
Assessment of an onerous contract may require companies to evaluate the elements of costs that should be considered unavoidable. Recently, the Expert Advisory Committee (the committee) of the Institute of Chartered Accountants of India (ICAI) through its opinion has provided guidance on determination of unavoidable costs for the purpose of onerous contract. In our article, we aim to highlight the key elements of costs that need to be considered while accounting for onerous contracts as provided by the committee in its opinion.
As is the case each month, we have also included a regular round-up of some recent regulatory updates in India.