[INTERVIEW] Saket Modi, CFA,  Founder and Director Square Mile Global Consulting | Impact of COVID-19 on Going Concern and Impairment of Assets in IFRS

We interviewed Saket Modi, CFA, Founder and Director Square Mile Global Consulting on the impact of COVID-19 on IFRS Financial Statements. He is a speaker on the topic at the 2nd Finance Conference on 27 October 2020.

Connect with Saket: https://www.linkedin.com/in/saketmodi/

How does COVID-19 affect the preparation and analysis of the IFRS Financial Statements?

COVID-19 has affected most businesses globally and this has implications on financial reporting. One of the key areas that the management and auditors have to closely look at is the going concern assessment of the business. Does the business have sufficient cash or access to cash to continue in operation for the foreseeable future? The coronavirus pandemic also affects measurement of assets and liabilities such as asset impairments and debt restructuring.

What are the main changes in the way assets and liabilities are measured during the pandemic?

As mentioned above, most businesses are adversely affected by the pandemic, but some of them, for example, aviation, hospitality have had a significantly more adverse impact than the others. The short to medium term impact on these businesses may mean that the assets generate cash that is significantly lower than that originally expected and they need to be impaired.

The fair value of assets may reduce significantly. Debt may be restructured or payment holidays granted which has an impact on the measurement. Due to the uncertainty that we current face about the return back to normality, there are significant judgements and estimates required in the measurement of the assets and liabilities.

What are the other key changes that we expect to see in the 2020 financial statements?

The 2020 financial statements will be very different to the 2019 financial statements. In addition to the going concern and measurement issues discussed above, we expect the management to report on the steps taken within the entity to mitigate the impact of COVID-19.

There will be more disclosures especially around the use of judgements and estimates, and also sensitivity analysis to help users understand the impact of the assumptions used on the financial statements. If an entity is no longer a going concern, the financial statements would be prepared on a break-up or liquidation value basis. 

The following quote is relevant in the current environment: “Revenue is vanity, Profit is sanity and Cash is the king”.

Many entities have already taken measures to preserve cash, for example, discontinue dividends or reduce planned capital expenditure, or improve the access to financing facilities so that they can continue in operation in the short term, and the business stays viable in the medium to long term.

Saket Modi, CFA is the founder and director at Square Mile Global Consulting (www.smglobal.co.uk), a London-headquartered financial training and consulting company.

Square Mile Global Consulting specialises in IFRS and IPSAS training, and offers e-learning courses on Blockchain, Cybersecurity and Data analysis accredited by the American Institute of Certified Public Accountants (AICPA). In addition, it offers the World Class Manager, a management development programme for finance and accounting professionals, in partnership with the Global Growth Institute, UK.

Saket has facilitated IFRS courses for finance and non-finance professionals from over 50 countries in UK, Europe, Africa, Middle East and Asia. He previously worked with Lloyds Bank and Ernst & Young in London.

Connect with Saket: https://www.linkedin.com/in/saketmodi/