Effect of COVID 19 on the financial statements wrt to Accounting Standard

CA Amrita Chattopadhyay (Audit & Assurance) (13029 Points)

01 April 2020  

The impact of Corona virus has been not only felt on the health of people worldwide, but it has impacted the business community and the state of economy. This has consequential impact on the financial statement as well. Following is the synopsis in the Indian Accounting Standard (Ind AS) and Accounting Standard (AS)


Indian Accounting Standard / Accounting Standard

Effect on the financial statement

IND AS 2 and AS 2 - Inventory measurement

In considering the net realizable value, the allocation of  fixed production overhead to the cost of conversion may be considered

IND AS 1 Presentation of financial statement



In case of any significant write downs and if they require disclosure

Due to COVOD 19, the loan liability may change resulting in disclosure of current & non-current liability

COVID 19 may have affected the financial performance and financial position of entities.
Therefore, preparers may consider making adequate disclosures and explanatory notes regarding the impact of COVID-19 on its financial position,
performance and cash flows.

AS 5 Net profit or loss for the period prior period items and changes in Accounting policies

Effect on the economy/sector resulting in changes in the Accounting policies

IND AS 36 & AS 28 Impairment of Non-Financial Assets



Due to COVID 19, there might be temporary ceasing of operations or an immediate decline in demand or prices resulting in lowering of revenues and profitability and reduced economic activity. These are the factors that the management may consider as the indicators that may require impairment testing for the purpose of Ind AS 36 and AS 28.

The management needs to consider the following:
1. contractor in economic activity due to the outbreak of COVID 19 is considered to be an impairment indicator at the reporting date, which results in an impairment assessment
2. the assumptions used to determine discount rate to measure the recoverable amount require any adjustments;
3. the forecasts or budgets for future cash flows prepared by management should be updated to reflect the impact of COVID 19;
4. reasonable assumptions are taken in estimating the value-in-use and fair value less costs of disposal and ensure that the impairment loss, if any, is estimated reliably

Testing of impairment of Goodwill has to be done considering the adverse effect on the operation and cash generation to which the Goodwill is associated


ECL (Expected Credit Loss) requirement of Ind AS 109, the measurement of ECL is expected to consider current as well as forecasted macro-economic conditions and more than one scenario. Entities may need to develop one or more scenarios considering the potential impact of COVID-19.


 1. If entities have adopted cash-flow hedge accounting for certain forecasted transactions, they should assess whether the transaticon still qualifies as a highly probable forecast transaction considering their business environment
2. Estimate the fair value of derivatives, including paying special attention to underlying assumptions of derivatives, e.g., forward curve of interest rate, foreign currency, commodity etc

IND AS 107 Financial instruments Disclosures

1. Entities may need to disclose the impact of COVID-19 on various credit related aspects such as methods, assumptions and information used in estimating ECL, policies and procedures for valuing collaterals etc.
2. If the entity is unable to assess the impact of COVID-19 in estimating the impairment loss due to the inadequacy of informaon, the same should be disclosed appropriately

AS 13 - Accounting for Investment


Entities may have to carefully consider the requirements of making provisions for decline in the value of investments, which is other than temporary.

In respect of financial assets within the scope of AS 13, entities have to carefully consider the impact of COVID-19 on determinaon of fair value for valuation of investments classified as Current Investments.

IND AS 113 Fair value measurement



The current financial and capital market environment across the globe has got affected by the rapid spread of COVID-19 and may have developed the following features.
1. Significant volatility or indication of significant decline in the market prices of financial instruments like equity, bond and derivatives
2. Significant decrease in volume or level of activities

Preparers should be guided by the application guidance in Ind AS 113 that indicates circumstances in which the transaction is not considered an orderly transaction

Preparers using valuation techniques may have to consider the impact of COVID-19 on various assumptions including discount rates, credit-spread/counter-party credit risk etc.

Accounting for Derivatives

In respect of recognition and measurement of derivatives within the scope ICAI Guidance Note on Derivatives, entities may need to consider the impact on key inputs/assumptions such as foreign currency rate, interest rate, etc. used in their valuation techniques, including the potential impact on hedge accounting

IND AS 116 Leases



Due to COVID-19, there may be changes in the terms of lease arrangements or lessor may give some concession to the lessee with respect to lease payments, rent free holidays etc. Such revised terms or concessions shall be considered while accounting for leases, which may lead to the application of accounting relating to the modification of leases. However, anticipated revisions should not be taken into account

Discount rate used to determine the present value of new lease liabilies may need to incorporate any risk associated with COVID-19.

Entities will need to determine whether as a result of COVID -19, any lease arrangement has become onerous.

IND AS 115 Revenue from contract with customers


Due to COVID-19, there could be likely increase in sales returns, decrease in volume discounts, higher price discounts etc. Under Ind AS 115, these factors need to be considered in estimating the amount of revenue to recognised, i.e., measurement of variable consideration.

Ind AS 115 also requires disclosure of information that allows users to understand the nature, amount, timing and uncertainity of cash flows arising from revenue. Therefore, entities may have to consider disclosure about the impact of COVID-19 on entities revenue.

AS 9 Revenue Recognition

entities to disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties.

IND AS 37 - Provisions, contingent liabilities and contingent Assets


Management should consider whether any of its
contracts have become onerous. The same should be accounted for as per Ind AS 37. The penalty for non-execution of the contract should also be taken into consideration
Ind AS 37 also requires assets dedicated to a contract to be tested for impairment before a liability for an onerous contract is recognised.
If the management is unable to assess whether some of the executory contracts are onerous due to inadequacy of information, the same should be disclosed.

Entities may have insurance policies that cover loss of
profits due to business disruptions due to events like COVID-19. Entities claims on insurance companies can be recognised in accordance with Ind AS 37 only if the
recovery is virtually certain i.e. the insurance entities have accepted the claims and the insurance entity will meet its obligations.

IND AS 1 Presentations of Financial Statements
IND AS 10 Events after reporting period

Going Concern Assessment
Management of the entity should assess the impact of COVID-19 and the measures taken on its ability to continue as a going concern

IND AS 12 - Income Taxes

Consideration to reduce the deferred tax liability or create additional deductible temporary differences.
Management might also consider whether the impact of the COVID-19 affects its plans to distribute profits from subsidiaries and whether it needs to reconsider
the recognition of any deferred tax liability in connection with undistributed

IND AS 16 Property, Plant & Equipment

Consideration of expected useful life and residual life of the asset as some assets may not be utilized or under utilized during certain period

IND AS 23 Borrowing Cost

Above standards require that the capitalisation of interest is suspended when development of an asset is suspended. The management may consider this
aspect while evaluating the impact of COVID-19.

IND AS 10 and AS 4 Post Balance Sheet Events

Entities must disclose significant recognition and measurement uncertainties into adjusting and non-adjusting events that might have been created by the outbreak of the COVID -19 in measuring various assets and liabilities. They should also disclose how they have dealt with the impact of COVID -19 on the financial position and financial performance of
the entity.

IND AS 110 -Consolidation of financial statement

financial statements of parent and subsidiaries
used in preparation of the consolidated financial statements are usually drawn upto the same date. It may be noted that in any case, difference between the
reporting dates should not be more than three months


If principal auditor is unable to obtain adequate information or reporting from the component
auditors, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation on the scope of audit