A sample of 330 Q1 and Q2 of 2020 filings – those with reporting dates around 31 March and 30 June – shows the main COVID-19 related issues that have been addressed. Of those referring to the implications of COVID-19 on corporate reporting:
- 60% discussed (potential) impairments due to COVID-19
- 20% reported that government support had impacted their organizations
- 15% discussed threats to the going-concern status of the company
- One in seven reported that the company had either provided or received rent concessions due to COVID-19
Not only did we see a significant increase in the reporting of COVID-19-related issues in Q2 compared with Q1, but the type of issues covered changed as well. There was a focus on impairment and going concern in Q1 and hardly any mention of government support or rent concessions, whereas, in Q2, mentions of government support and rent concessions rose dramatically.
So what lessons can be learned for those still preparing for 2020 annual reporting?
Establishing the best process to prepare accounts
Working from home has become an accepted and necessary way of operating during the pandemic for many finance functions around the world. However, for a large number of companies 2020 will be the first year-end closing process since the crisis started. This will put a significant burden on their internal controls, as these are generally designed for the office environment, and present challenges in gathering and analyzing data in time.
Coordination with external specialists, for example when performing impairment tests, assessing fair values and performing actuarial calculations and analyses, may also be more challenging.
As discussed above, some relief on 2019 annual and 2020 interim reporting deadlines has been provided by regulators including the US Securities and Exchange Commission and the European Securities and Markets Authority. It remains to be seen whether similar relief will be offered for 2020 annual reporting. Companies should thus consider the implications of COVID-19 when planning the year-end closing process, including whether to start earlier and liaise with service providers.