The spread of Coronavirus has impacted the world drastically. The disease has taken the lives of over 2,800 people worldwide and caused interruptions to travel and the world economy. Donald Trump commented in a White House press conference on the 27th of February stating “we’re very close to a vaccine”. Despite this, the timeline for when a vaccine is distributed, after being tested and produced is still unknown. Considering this, the full extent of the damages caused by the virus are still yet to be realised and only time will tell.
The effects of which the Coronavirus has had on businesses and economic growth will affect the ways in which accountants complete their financial reporting. As is the case currently, companies should ensure that in determining the carrying amount of assets and liabilities on the balance sheet they are accounting for conditions which only exist at the reporting date. Subsequent events should not be accounted for as they are known after the reporting date, unless included in the notes of the financial reports under ‘Subsequent Events’. This is important for companies which account for and estimate provisions, receivables and deferred tax assets and liabilities.
The Coronavirus will affect these values, especially for companies which have large global interest . We have already witnessed the slowdown in exports and imports of goods from China, the country where the virus originated. Speaking from personal experience, Coronavirus stopped the import of one of my colleague’s bridesmaids’ dresses, causing absolute wedding chaos. This is just one minor example of the economic implications and losses caused by the virus, but as you can imagine, situations similar to this are happening all around the world.
Now considering the perspective of the company in this event; the company selling the wedding dress would have reported a sale and a reduction in their stock subsequent to the exchange. But as the transaction of this dress may never occur, the company may have to reverse this transaction. As these cases would have occurred prior to the Coronavirus outbreak, the company selling the dress would have relevant provisions established and reported on the balance sheet, which account for estimates in Bad Debt and asset impairments, considering current global events. Subsequent to the outbreak of the virus, these accounts may be understated and should be reconsidered when required.
Written for you by Chris Davies
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