Continue to Focus on Accounting and Disclosures Related to the Pandemic
Entities need to continue to consider the effects of the COVID-19 pandemic and its economic fallout in their accounting and disclosures for the latest period, and their disclosures should evolve as facts and circumstances change.
As a reminder, that includes considering whether the pandemic-induced recession has triggered asset impairments; whether any accounting estimates, such as the amount of variable consideration an entity expects to be entitled to under contracts with customers, need to be revisited; and what the effect might be on hedging relationships, compensation arrangements and income taxes.
Entities that are permanently closing offices and other places of business also need to consider whether long-lived assets, including right-of-use assets associated with leased space, if they’ve already adopted the new leases standard, are or will be abandoned. Entities will need to consider the accounting implications of abandoning assets and include the appropriate disclosures in the financial statements.
Entities also need to continue to consider how having employees work from home may have affected internal control over financial reporting (ICFR), including controls related to physical counts of inventory. As part of its review of ICFR, management should also consider whether any service organizations the entity uses have made changes to their own operations or controls that affect the suitability of the design of their controls, the operating effectiveness of their controls or the timing of their System and Organization Controls (SOC) reports. A company’s independent auditor may need to perform additional procedures to address changes a service organization cites in a SOC report or a change in the timing of such a report.
Entities should continue to update their disclosures about the effects of the pandemic, current market conditions and their expectations for the future.
(Source: EY Financial Reporting Briefs – September 24, 2020)