Companies should monitor the current and potential effects that the COVID-19 outbreak may have and consider the following items to help ensure that their financial reporting and audit processes are as robust as possible.
Accounting and financial reporting, including subsequent events
Companies should consider whether economic uncertainties and market volatility have or will affect accounting conclusions, going concern assessment and whether the outbreak is an adjusting or non-adjusting event for financial reporting purposes.
For the year ended 31 December 2019
Generally, the financial reporting effects of the COVID-19 outbreak is considered a post balance sheet non-adjusting event as the significant changes to the business activities and economic conditions occurred as a result of events occurring after the balance sheet date. Accordingly, no adjustments are made to the 31 December 2019 financials.
Companies however will need to update their going concern assessments to determine if it is appropriate to prepare the financial statements on a going concern basis. For most Companies, the outbreak may not lead to the conclusion that the going concern assumption is not valid. In that case, adequate disclosure in the financial statements on going concern is still required. Where the going concern assumption is determined to be valid but material uncertainties over that assumption exists, adequate disclosure including a paragraph highlighting the material uncertainties is required.
Lastly, post balance sheet disclosures are required to explain the potential impact the COVID-19 outbreak may have on the Company’s business and operations and the extent of uncertainty thereof. Management discussion and analyses of principle risks and uncertainties facing the Company provided in the financial statements should be consistent with the disclosures and any economic outlook provided in other parts of the Annual Report.
For periods ending after 31 December 2019
Effects of the COVID-19 outbreak is an adjusting event and estimates and assumptions particularly in the areas of impairment assessments and valuation will need to reflect the expectations and conditions present as at the end of the annual or quarterly reporting period. Those areas impacted include:
- Estimation of recoverable amounts of an asset or a cash-generating unit (e.g. property, plant and equipment, intangible assets, goodwill)
- Measurement of expected credit losses
- Valuation of inventories, investment properties measured at fair value and investments in unlisted equities
As mentioned above, Management discussion and analyses of principle risks and uncertainties facing the Company provided in the financial statements should be consistent with disclosures and any economic outlook provided in other parts of the Annual Report.
In light of the developments of the COVID-19 outbreak, Companies should continually assess the impact of the outbreak on the going concern assumption. Companies should also consider their disclosure obligations regarding their business risks related to the impacts of the COVID-19 outbreak in the periodic disclosures.
Ability to obtain information
A company’s ability to obtain and provide financial statements or information could be impacted. Companies with significant operations in countries affected by COVID-19 may encounter delays in receiving financial data for consolidated financial statements as a result.
Internal control over financial reporting (ICFR)
Companies with significant global operations should consider whether there is any effect on internal control over financial reporting due to the local impacts of COVID-19. For example, new controls may be implemented and/or revised as companies start to modify IT access to enable remote workforces. Disclosure of material changes would need to be disclosed in ICFR.
Delayed reporting, filings and communications, including AGMs
If companies anticipate reporting or filing delays due to the outbreak or travel restrictions, they should contact their relevant local regulatory bodies to discuss the details. Failure to follow regulations and timely reporting may have consequences unless specific agreements are in place with regulators.
In Singapore, the Singapore Exchange Regulation (“SGX RegCo”) has already announced that it will allow issuers with a 31 December financial year-end up to 30 June 2020 to hold annual general meetings (“AGMs”) to approve their 31 December 2019 (“FY Dec 2019”) financial results (“Waiver”). This extension is for issuers, irrespective of their place of business or operations, that need more time to implement measures to address these concerns. Notwithstanding the Waivers, issuers are subject to continuous disclosure obligations under the Listing rules and all material information must be disclosed on a timely basis.
SGX RegCo is closely monitoring the situation and will determine if further measures are required. For issuers with a financial year-end other than 31 December for both listed and non-listed entities, the finance function may also anticipate additional challenges in meeting the reporting timetable of the organisation and delays in year-end closing processes due to additional work necessitated by the severity of the impact of the outbreak, for example, additional impairment and going-concern assessments.