Written by: Ashley Goldsmith, Product Manager (Accounts)
Companies House response
The unprecedented impact of the Coronavirus is being felt by all companies worldwide. The sudden shift in working conditions and potentially the need to add in additional ‘Covid-19’ disclosures within the financial statements has led to Companies House allowing firms a 3-month filing extension without penalty as of 25th March 2020.
The joint initiative between the government and Companies House will give some respite to entities in this turbulent time – although it should be noted that the extension must be applied for using the Companies House website as outlined here: https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts
The application can be completed online and should take no more than 15 minutes providing you have the following details to hand:
The effect on financial reporting
The Coronavirus has already had a significant impact on a large number of businesses and clearly the going concern status of some entities is now going to be called into question.
Of those who do maintain their going concern status, there are likely to be material uncertainties that they will be able to continue and obviously this fact will also need to be disclosed.
From a software provider’s perspective, this puts us in a difficult position as each entity will need to be assessed on its own merits and therefore, producing some boiler-plate wording to cover the effects is likely to be inappropriate.
Although going concern is perhaps the most obvious disclosure to be affected, there are many other areas which may be impacted, including:
Some of these areas are discussed in further detail here:
Audit reports
The impact upon the audit report will clearly depend upon the audit evidence obtained, but it would seem inevitable that the more and more entities will not be deemed a going concern. For those that are, it is likely that a ‘material uncertainty relating to going concern’ section will be included.
In instances where management are unwilling to disclose these material uncertainties, a modified auditor’s report may be considered. The ICAEW even suggest that it may be appropriate to delay the approval of the financial statements until such a time when less uncertainty exists.
Revenue recognition
With the relatively recent introduction of IFRS 15 Revenue from Contracts with Customers, firms will need to exercise judgement to estimate the potential impact on their revenue streams and any decisions made with regards to amending payment terms will need to be fully disclosed within the applicable accounting policy.
Events after the reporting period
For firms with December 2019 period ends, the effect of the Coronavirus is highly likely to be felt before the financial statements are authorised for issue. This leaves firms with a decision to make as to whether they see the changes as adjusting or non-adjusting events.
Adjusting events will result in amendments to the figures in the financial statements but some firms may consider the changes to be non-adjusting, but material in nature. In this instance, it may still be necessary for an estimate of the likely financial effect to be disclosed in this note.
The CaseWare response
Over the last few weeks we have received several queries from clients as to whether or not we will be issuing an update to include updated disclosures to cater for the Coronavirus crisis.
As described above, issuing boiler-plate wording would not appear to be an option as the impact will vary from one entity to the next. We would however welcome your feedback, and we have created a very short poll which can be found here.
*These are the opinions of CaseWare Product Managers to provide information and insight to our products and should not be considered as a replacement to statutory guidance.