While the whole world is fighting against the outbreak of coronavirus, companies are struggling even more so to ascertain the reliability and accuracy of financial information.
Future developments are currently difficult to predict. It is therefore important that businesses are proactive in assessing their capability to withstand disruption from both an operational and a financial standpoint, and they act decisively to mitigate actual or potential risk. Due to the significant disruption in business activity and drying up of cash flows, sectors most impacted by COVID19 are:
· Businesses dependent on tourism and entertainment: hotels, some airlines, luxury goods traders, and retailers.
· Advanced manufacturing and manufacturers are dependent on parts from affected countries, notably Automotive and Technology.
· Oil & Gas and Mining & Metals will see fall in both demand and commodity prices.
· Exporters who are significantly exposed to the international market.
SEBI, the market controller, has stretched out the cut-off time to file Q4 results till June 30, as the effect of the novel coronavirus is difficult to consider in the financial reports. In an interview with ETCFO, Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India, discussed extended lockdown implications and critical aspects to be considered while preparing the fourth-quarter report of FY 20.
Organizations are probably going to encounter bigger misfortunes on products that are stuck in transit and steady expenses in restarting the factories. Another critical area of attention required is concerning fair value measurements. Fair value book-keeping is the act of estimating assets and liabilities at their present market value. For that, Ind AS 109 and Ind AS 16 prescribe certain fundamental principles on the definition and determination of fair value. As available market price is a crucial element in fair value measurements, the current volatility in the prices of financial instruments poses significant challenges for the firm to arrive at the fair value for financial assets.
Low development or negative development is fundamentally going to build an impairment risk for all organizations. Indeed, even at times, this may even raise a warning as for going concern appraisal of the organization.
Against this backdrop, the accounting regulator of the country, the Institute of Chartered Accountants of India (ICAI) has issued an advisory on the “Impact of Coronavirus on Financial Reporting and the Auditors Consideration”. This advisory attempts to familiarize the preparers and auditors with some critical areas that require special attention during the pandemic.