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The impact of the COVID-19 outbreak on your financial statements

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Kate McCann

Kate McCann

By Kate McCann, Associate Director, Audit & Assurance at Grant Thornton in Belfast

Many businesses across Northern Ireland have seen the doors shut with no indication of when they might open again as a result of the COVID-19 pandemic and the subsequent lockdown.

Not only should you be aware of the trading impact of the pandemic on your business, but also the impact that the current situation may have on your financial statements.

Uncertainty surrounding Brexit and mounting global trade and growth concerns were already causing consternation even before the COVID-19 outbreak. Your business should now be reviewing how to manage the widespread disruption to supply chains, and how to continue trading with the lack of availability or delays to supplies.

For many firms, already under pressure, the impact of this further disruption may be more than you can bear. It is important that you assess how your business has been impacted by COVID-19, and how this affects the going concern assumption. Where issues are identified in relation to the going concern assumption, additional disclosures may be required.

You should also consider if your business will require a post balance sheet event disclosure in your financial statements. For example, at 31 December 2019 there were few reported cases and little confirmed evidence of COVID-19 spread amongst humans, therefore the pandemic would not have an impact on balances within the financial statements at 31 December 2019. However, it would be what is known as a ‘non-adjusting event’.

Where the impact of the outbreak is material to the financial statements, this will need to be disclosed in the notes as a post balance sheet event, along with an estimate of the financial effect. If the financial effect is not yet known, then this must be also be disclosed.

Where stock is material to the financial statements, your auditors will need to gain comfort over its existence at the reporting date. As a result, they will be required to observe the physical stock count unless it is impracticable to do so.

If, due to the coronavirus, attendance at the stock count is impractical, then it may be possible to carry out alternative procedures. For example, if you can carry out your stock count at a later date, your auditors can attend this count, and roll-back procedures can be performed.

In order to perform roll-back procedures, your auditors will need access to all stock movement since the year end, so you need to ensure your records reflect this. Alternatively, technology could be utilised and if you are carrying out your stock count, but your auditors cannot attend, they could potentially attend by video call.

If it is not possible for your auditors to obtain evidence of stock at the reporting date, then this will have an impact on the audit report.

This situation is changing rapidly. Keeping in touch with your auditor or accountant throughout this time will mean that any potential impact to your financial statements won’t come as a surprise.

For further information or advice, Kate McCann can be contacted at kate.mccann@ie.gt.com

Grant Thornton (NI) LLP specialises in audit, tax and advisory services.

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