The world is in the grip of CORONA commonly known as COVID-19. It has impacted the way of life drastically and adversely. Incomes of the common masses, business houses and of the governments have taken a big hit. One can foresee the looming job losses, salary cuts and the reduction in demand due to the conservative approach of one and all so that the money could be saved for the unseen. The governments across the world are doling out big packages but the real picture or the impact of the same is not visible presently and is likely to take few more months. The Indian government has also announced a package exceeding Rs Twenty Lac crores which primarily has aimed at availability of liquidity to the industry. Also, presently the lockdown seems to have taken away the livelihood of lacs of persons. Now the situation has taken a vicious turn, on the one hand there are no jobs and on the other hand there is shortage of the labour in most of the industrial towns as the labour has returned to their native towns. It will be difficult to run labour intensive businesses in the near future. The companies may go in for more automation resulting in permanent job losses. Also on the other brighter side is there, the country is gearing up for the next wave of new businesses because of trust deficit with China. The government seems to be working hard to attract more industries to India likely to shift out of India which will benefit all.
The investors sentiment across world and in India too are at a low level. The correct information always helps in acceleration of the confidence of all stakeholders be it investors, corporates, public or government bodies. With the opening up of economic activities in India at the amidst a long lockdown, now the government is waking up to the idea of at least collecting some data to assess the loss incurred due to the COVID pandemic and the way forward.
So, the regulator SEBI and accounting Institutes ICAI-CMA and ICAI have come up with advisories/circulars/other documents to guide the business houses for reporting of COVID-19 expenses/its impact on businesses/companies.
SEBI has recently issued a circular which has made it mandatory for all the listed companies to make available the various parameters relating to the working of the company and impact of COVID-19 on business to all investors. This exercise has been undertaken to boost the confidence of the investors. The relevant extract of the circular no SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated May 20, 2020 is given below:
Listed entities should endeavour to ensure that all investors have access to timely, adequate and updated information. Towards this end, entities are encouraged to evaluate the impact of the CoVID-19 pandemic on their business, performance and financials, both qualitatively and quantitatively, to the extent possible and disseminate the same. An illustrative list of information that listed entities may consider disclosing, subject to the application of materiality, is given below:
• Impact of the CoVID-19 pandemic on the business;
• Ability to maintain operations including the factories/units/office spaces functioning and closed down;
• Schedule, if any, for restarting the operations;
• Steps taken to ensure smooth functioning of operations;
• Estimation of the future impact of CoVID-19 on its operations;
• Details of impact of CoVID-19 on listed entity's -
o capital and financial resources;
o liquidity position;
o ability to service debt and other financing arrangements;
o internal financial reporting and control;
o supply chain;
o demand for its products/services;
• Existing contracts/agreements where non-fulfilment of the obligations by any party will have significant impact on the listed entity's business;
• Other relevant material updates about the listed entity's business.
The above list is only illustrative and not exhaustive. Further, to have continuous information about the impact of CoVID-19 on operations, listed entities may provide regular updates, as and when there are material developments.
The SEBI has asked the companies to provide the updates as and when there are certain developments which may have impact on decision making of investors.
SEBI has taken a pragmatic approach in asking the companies to report the impact of COVID-19 on continuity of business, profitability, debt servicing, liquidity demand etc.
The companies which maintain cost records under section 148 of the Companies Act are also required to report the COVID-19 losses as separate item in reconciliation statements.
The companies should try to report the same figures in the records being submitted to SEBI, MCA and Cost Audit Branch of MCA.
Rather an explanatory note on the parameters as required under SEBI circular must be mentioned in financial statements vide Notes to the accounts as well as cost statements through CRA-3 (Cost Audit Report)
Attention of the readers is invited to the fact the cost records are required to be prepared on regular basis i.e. monthly/quarterly/half yearly/yearly basis and there is also requirement submission of financials on quarterly basis to SEBI. The alignment in the reporting of COVID-19 losses/expenses must be ensured.
Institute of Cost Accountants of India also came out with an advisory to guide the stakeholders on treatment of various elements of costs in compilation of any Cost Statement and compilation of Cost Records & Annexures to Cost Audit Report for the year 2019-20. Hence this Advisory is applicable for the Accounting Period ended 31st March 2020 only.
Institute of Chartered Accountants of India has also issued the following advisories/documents with relation to COVID-19
- ICAI COVID-19 FAQs on Indian Accounting Standards
- ICAI Accounting and Auditing Advisory (March 2020)-Addendum April 10, 2020
- ICAI COVID-19 Disruptions Accounting and Auditing Advisory
- IFRS 16 and covid-19 Accounting for covid-19-related rent concessions applying IFRS 16 Leases, issued by IASB
- IFRS 9 and covid-19 Accounting for expected credit losses applying IFRS 9 Financial Instruments in the light of current uncertainty resulting from the covid-19 pandemic, issued by IASB
The companies must take into consideration the guidance provided by SEBI/ICAI/ICAI-CMA in reporting of the financial/costing figures.
Institute of Cost Accountants of India a primary cost accounting body created by an Act of Parliament has come out with an advisory providing guidelines for computation of losses due of COVID-19 situation. Not only this, the same is required to be reported in the cost audit reports being filed with Ministry of Corporate Affairs Government of India. The figures are required to be reported as below in the reconciliation statement of costing and financial profits.
The figure given below in reconciliation statement is required to be approved by the Board of Directors of the Companies and certified by the independent Cost Auditors where cost audit is applicable or to be shown in cost records where there is no cost audit but maintenance of cost records under section 148 of the Companies act is Mandatory.
COVID 19 - Unabsorbed Abnormal Cost XXXXXX
By releasing the advisory, an attempt has been made to assist various governments to identify the ACTUAL COVID-19 losses being claimed by various organisations. The advisory may help the policy makers in estimation of the overall impact of COVID-19 losses by extrapolating the figures reported by the Board of Directors and vetted by independent cost auditors.
ICAI-CMA has set the stage for identification of COVID-19 losses/costs in respect of corporates especially under section 148 of the companies act 2013. Ministry of Corporate Affairs can ask all companies to follow the advisory and report the same in the audited cost records / financials of 2019-20 and work out the same separately for succeeding periods and report to concerned ministries for policy formulations.
The companies are required to keep into mind the impact of COVID -19 expenses on total costs and must exclude the same from the inventory valuation, if included in the same. Attention is drawn to "para 16 of IND AS-2 Inventories" where it has been categorically stated that abnormal costs need to be excluded from the inventory valuations.
"16 Examples of costs excluded from the cost of inventories and recognized as expenses
in the period in which they are incurred are:
abnormal amounts of wasted materials, labour or other production costs;"
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