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The World Upside Down: What is the impact of COVID-19 on Financial Statements?

The world has turned upside down in the last few weeks with the impact of COVID-19 spreading to businesses and people globally.

Who would have imagined this at outset of the decade? Bill Gates said in his 2015-TED talk "If anything kills over 10 million people in the next few decades it’s highly likely to be a highly-infectious virus rather than war. Not missiles, but microbes."

Though it is clear most businesses are affected by COVID-19, it is extremely difficult to assess the current and potential commercial and financial impact. There are implications of this extraordinary situation on the financial statements prepared under the International Financial Reporting Standards (IFRS).

COVID-19: What is the impact of COVID-19 on financial statements

Will the financial statements for the period ended 31 December 2019 be adjusted for the impact of COVID-19?

IAS 10 Events After the Reporting Period defines adjusting events as those that existed at the end of the reporting period. Since the impact of the virus appears to have mostly spread in 2020, it will be a non-adjusting event for the period ended 31 December 2019.

For companies with 31 December 2019 year-end, the nature of the event and an estimate of the financial effect must be disclosed, if material. If it is not possible to estimate this, a statement to that effect is required. These companies will show the impact on the results for the quarter ended 31 March 2020. Without a doubt, the impact of COVID-19 will be a key discussion point in the coming quarters on the CEO/CFO meetings and investor calls.


The Indian companies have 31 March as their year-end and will have to adjust their Ind AS (Indian Accounting Standards) financial statements for the estimated financial impact of COVID-19. The auditors will have to revise the risk assessment of their clients.

What are the key items in the financial statements that require close attention due to COVID-19?

COVID-19 has an adverse impact on operations, as for example, demand for goods or services, the effect on supply chains and service providers. In addition to understanding an impact on top-line (revenue) and bottom line (net income), the significant areas that investors and analysts should closely review include:


· going concern assessment
· customer receivables, including expected credit losses
· inventory obsolescence
· impairment of assets including goodwill
· abnormal costs, including paid staff leave
· impact of the government’s emergency measures
· insurance recoveries
· liquidity, including the ability to service debt
· impact on future dividends and share buy-backs
· management disclosures on the commercial impact, future risks and uncertainties

It would be useful for regulators to issue guidance on minimum disclosures in relation to the impact of COVID-19. This would help ensure some consistency and comparability between companies in the same jurisdiction.

From a commercial perspective, many customer and supplier contracts may need to be renegotiated. This will have a significant impact on the forecasts of profitability and cash flows.

Lastly, as most of us work and interact remotely in the near future, it is important that the quality of financial statements, their audit and financial analysis is not compromised. We may see extensions to the IFRS financial statements filing deadlines.

Stay safe and positive.

The author is a financial trainer and consultant with Square Mile Global Consulting ( He specializes in IFRS, Ind AS, and IPSAS, and has helped organizations from over 50 countries in Europe, Africa, the Middle East and Asia in matters relating to financial reporting and analysis.


Published by

Saket Modi
Category Accounts   Report

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