Will Financial Statements Require Disclosures Related to COVID-19?

March 16, 2020

Due to the uncertainty caused by COVID-19, business owners and executives should be keenly aware of the additional disclosures or adjustments required to financial statements not yet issued.  It may be appropriate to include additional disclosures in the financial statements due to the already known business interruptions that are occurring and the projected impacts on businesses from the circumstances surrounding COVID-19.  These factors create additional matters that will require management to further consider the ability to continue as a going concern.

Aprio will work with business executives and their stakeholders’ (financial institutions, owners and others) to navigate the disclosures and impacts.  We are also in discussions with lenders across the country to understand how they will look at these impacts to the financial statements.

Financial statements provide information about certain current conditions and trends that help stakeholders in predicting reporting entities’ future cash flows and results of operations. Entities’ operations and the information about those operations that financial reporting provides depends on the assessment of the risks and uncertainties inherent within specific company operations.

Specific risk factors that should be considered include:

  • Lower Demand – for product or services due to negative impacts of the U.S. or global economy
  • Sources and Availability of Materials – businesses affected by meaningful delays in supply chain or other resources needed, resulting in reduced production and/or profits
  • Production Suspension – adversely impacts the business and causes disruptions and production shortages at third-party manufacturers or packaging facilities
  • Location of Operations – impact of closures, temporary relocations, special government measures, travel restrictions, including impact to international operations
  • Liquidity – lack of available liquidity sources to support operations
  • Concentrations – increased vulnerability as a result of certain concentrations
  • Real Estate – tenants’ financial condition could adversely impact property profitability

Because of the severity and global nature of the COVID-19 pandemic, it is reasonably possible that the estimate(s) in financial statements will change in the near term and the effect of the change will be material.

Most entities will add disclosures regarding the potential impact of current global economic conditions on companies’ operations and estimates included in the financial statements.

For an immediate discussion please contact your Aprio Relationship Partner or contact us here.

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