It's vital for private company CFOs to zero in on the novel coronavirus impacts for financial statements, an American Institute of CPAs (AICPA) executive told CFO Dive.
"Private company CFOs should consider the possible financial reporting consequences, from necessary disclosures to asset impairment and other financial reporting requirements in accordance with U.S. generally accepted accounting principles (GAAP)," advises Bob Durak, AICPA audit and accounting technical services director.
To learn the details of U.S. GAAP disclosure compliance on the coronavirus, Durak pointed out private company CFOs can go to the AICPA resource center on coronavirus or search "financial reporting consequences of pandemic" online to see articles on the topic from the large accounting firms.
Durak says CFOs at companies seeing significant coronavirus impacts may need to have more frequent communications with management, the CPAs who serve the company, vendors and other stakeholders.
Audit hurdles
When a CFO's company is undergoing an audit and the coronavirus limits accessibility to the firm's locations, this can be particularly tricky.
"With coronavirus, auditors need to be more agile, more creative. Fortunately, accounting standards allow a decent amount of flexibility," Durak says.
He notes it can be very challenging for auditors to observe physical inventory accounts because of warehouses, stores and other facilities closed because of the virus.
Workarounds can include postponing the inventory count or having cameras deployed with an ability of the auditor to look at specific areas of a building, he says.
Durak warns: "If the supply chain is disrupted, CFOs need to look at the carrying value."
This examination is particularly relevant for businesses which have perishable products such as fresh fruit or seasonal merchandise such as goods aimed at Halloween or Christmas.
Other financial reporting areas that need attention of private company CFOs for coronavirus impacts, says the AICPA executive, include the collectability of receivables, the valuation of deferred tax assets and the valuation of intangibles such as goodwill and trademarks.
Some CFOs, he said, might know there will be a large impact of coronavirus, but be unable to put a number on it.
In that case, Durak says, make a financial disclosure of the impairment, and give it a dollar value later.
White paper gives guidance
Durak is the co-author of a recent AICPA white paper: Consequences of COVID-19: Financial Reporting Considerations.
The report cautions: "Among the many consequences of COVID-19, entities may face financial reporting implications and challenges. Impacts such as business and production disruptions, supply-chain interruptions, negative impacts on customers, volatility in the equity and debt markets, reduced revenue and cash flows, and other economic consequences may occur."
One specific consideration that needs to be noted when the accounting is being done: whether the consequences of COVID-19 represent subsequent events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued.
"As such, entities and practitioners may need to consider recent pertinent information related to their assessments of going concern," the white paper advises.
Elaborating on the hazards coronavirus can present that need to be disclosed in accordance with accounting standards, the report says FASB ASC 275, Risks and Uncertainties, requires disclosures that focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term or the near-term functioning of the reporting entity assessments of going concern.
"The risks and uncertainties addressed can stem from the nature of an entity’s operations, the use of significant estimates, and current vulnerabilities due to certain concentrations," the report cautions.
One of those considerations can be if the business is concentrated in a market severely impacted by the virus, the AICPA report notes.
