For many entities, disclosure about the impacts of COVID-19 in this year’s financial report and annual report will be a key point of difference compared to previous years.
Under Australian accounting standards, entities must reflect material events, whether favourable or unfavourable, that occur between the reporting date and the date when the financial statements are signed. This requirement is extended if there is a time gap between the date the financial report is signed and its publication in the annual report.
The COVID-19 pandemic evolved rapidly in 2020 and we should prepare for material changes between balance date and the publication of information. Financial reports may need to be adjusted or more information added to help keep readers informed of impacts on entities.
The COVID-19 pandemic will require ongoing evaluation to determine the extent to which developments after the respective reporting date should be recognised in the financial statements.
After your reporting date, your entity will need to capture and assess events that relate specifically to conditions that existed at or before the reporting date—that is, adjusting events. To do that, you need to assess your specific facts and circumstances to identify events that generally represent the culmination of a series of conditions that existed at or before the reporting date.
Financial reports may also need to include disclosures on conditions that arose after the reporting period that don’t need to be included in the financial information but are important for a reader to know. These are non-adjusting events.
Examples of events include:
|Adjusting events||Non-adjusting events|
Type of subsequent event
Adjusting events—change the financial information
Non-adjusting events—add disclosure, including quantitative information where possible
For example, ‘Due to COVID-19, we re-closed our convention centre indefinitely from X August 2020. Before the pandemic started, the centre generated average monthly revenues and expenses of $X and $Y, respectively.’
Possible COVID-19 examples
A relief package involves reimbursing small businesses for certain costs, and finance uses the claims received in July (subsequent event) to inform year-end accruals.
Budget revisions in July (subsequent event) show that asset values at 30 June require update because they were based on earlier cash flow forecasts.
Queensland Treasury has supplied guidance to departments and statutory bodies about disclosing the impact of COVID-19 on:
- revenues, expenses, assets, and liabilities for the year ended 30 June 2020
- disclosure of management’s significant estimates and judgements.
(Refer FRR 1A, section 1.6.3.)
Other entities may be able to adapt this guidance to their own circumstances.
Considerations for assessing events after the reporting period
Your latest monthly management accounts are a primary source for identifying subsequent events. Any material changes in the actual or forecast figures presented in these accounts indicates a subsequent event.
Also consider any internal decisions your entity has made since balance date with a financial impact that has not yet flown through to your management accounts. For example, new contracts or programs could have significant consequences for your entity’s future finances.
Finally, consider changes in your external environment. For example, a second wave of COVID-19 could have material implications that require disclosure.
Consistency of reporting about COVID-19 impacts between the financial report and annual report
Users expect that an entity would have more information available to disclose the effects of COVID-19 on their financial report and operations when they publish their annual report several months after the reporting date.
Your audit team will read and consider the information included in your annual report. We do this to ensure that the information is materially consistent with the financial report and may ask entities to make changes to the annual report to ensure readers can rely on the information. This year, audit teams will focus on pandemic disclosures.
Actions for management to take now
- Monitor changes in your business and the external environment for subsequent events relating to COVID-19 and other matters until you sign the management certificate.
- Determine whether any subsequent events you find are material and whether they are adjusting or non-adjusting. Process necessary journals for adjusting events, and update disclosures for adjusting and non-adjusting events.
- Ensure that the information you present about COVID-19 (and other matters) in your annual report is consistent with the financial report.
Minimise the time delay between signing the financial statements and releasing the annual report.