Unprecedented COVID-19 Outbreak and Financial Reporting and Audit Consideration

Recently, on 11 March 2020, World Health Organization (WHO) has declared the COVID-19 outbreak as a pandemic situation. Therefore, directly the coronavirus outbreak has resulted into very significant disruption to the business routine and create economic uncertainties. The market has become volatile, the long term interest rate has been declined especially in developed economies such as UK, US and Europe. This is based on the recent drama from oil and gas industries in which Rusia and OPEC were in argument and not able to come to the agreement to cut their cost as from their March 2020 meeting. Majorly, COVID-19 resulted to the business and economic threat globally. All the travel bans have been imposed on many countries with all the quarantine measured to almost entire populations. These conditions increase the level of uncertainty and risk for the business globally in which resulted in significant financial reporting implications especially to the preparers of the financial statements. The coronavirus outbreak gives warnings to the companies to increase their monitoring to face the potential challenges on the disclosures of financial reporting. The disclosure of financial reporting has been very significant implication to portray a positive image to the companies. Therefore, the potential impacts need to be identified by all companies in ensuring their financial reporting and audit processes are robust and benefited all the stakeholders. Disclosure Obligations The impact of the outbreak has become as one of elements in the business risk. Therefore, the companies should give more concentration on their disclosure obligation regarding business risks due to the impact of the COVID-19. The consideration need to be fits within the local context of regulatory requirements. In addition to that, in order to minimize the risks, the disclosure should be comprehensive and addressing the needs at all stages for instance individual, partnership and corporation. The language of disclosure also need to be understandable and avoiding the broad or generic language. Accounting Treatment and Reporting Requirement- Including Subsequent Events During this market uncertainties and volatility, each of the companies should consider how this situation will have impact on their accounting treatment. Similarly, the companies should evaluate on the occurring events post of the reporting period, the possible accounting treatment and disclosure and recognition requirements has been fully recognized during the reporting period. In addition, at the end of accounting reporting period, companies are required to assess whether there is any impairment for nonfinancial assets. An asset is impaired when a company is not able to recover its carrying value, either by using it or selling it. Thus, the COVID-19 impact such as the closures of manufacturing plants, social distancing enforcement, import/export restriction can be categorized as an impairment indicator. With the uncertainty of the current environment, the companies need to provide details disclosure, the evidence on which they are based and the impact of a change in key assumptions in determining the recoverable amounts of the assets. Internal Control Mechanism Companies that have business transaction in global operation should give more attention on how the internal control over the financial reporting might have impacted from the COVID-19. The appropriate actions need to be taken in order to minimize the business risk for instance the companies need to redesign the IT access in order to ensure the control can be remotely conducted by the employees either from home or from where they stay put as the social distancing actions has been enforced widely to lower the infection rate. Any changes that materially affected to the business operation need to be disclosed fully in their financial reporting statement. Audit process The progress of audit engagements need to include all other important elements and travelling into some key issues to consider what will be the impact of COVID-19 on the regulatory and government measurement especial related to the decision of going concern status, any deferment of transactions and risk management taken in sustaining the business operation. Operational, liquidity, credit, market risk will all be exacerbated by the COVID-19. Therefore, the modification of audit process need to be considered especially in getting assurance from the financial statement. For instance, the balance sheet and valuations have impact of reduced stock market valuations, credit valuations which directly lead to the income and potential liquidity stresses. In the end, the professional judgement from the auditors will determined the performance of the business during this COVID-19. Similarly, as the situation evolves, the regulator give mandates to the auditor to consider the impact of the COVID-19 on how they gather sufficient, appropriate audit evidence, recognizing the planned audit approach and the alternative procedure developed. The auditor need to engage with the entities to set clear expectations as to the level of disclosure impacting their annual report and communicate the risk of COVID-19 to the company. Conclusion In this unprecedented times at the global scale, the timely and meaningful financial reporting and disclosure of financial statement are important. With all measures taken to manage the risks, financial reporting can play an important part in the communication between companies and their stakeholders. By yours truly, Nurul Nazlia Jamil (Researcher)