This guide covers the impact of COVID-19 on the financial statements.

Review the publication on the AcSB's website.

It provides questions and points to consider as the board oversees risk management, operations, new legislation, financial reporting, technology, and cybersecurity.

Review the checklist on the AICPA's website and a summary on the Journal of Accountancy's website.

Look at worst-case scenarios that may emerge from paying less attention to maintenance routines and investments such as those in cybersecurity that protect against operational, financial, and reputational risks.

Review the blog on the NACD's website.

The COVID-19 pandemic continues to disrupt markets, businesses, and organizations. This disruption has spawned an environment of uncertainty and unpredictability that may create risks that are new, or intensified, in the circumstances.

The IAASB's goal is to support the important role auditors must play in sustaining trust in financial and other external reporting. The IAASB has been closely working with its national standard-setting partners and the International Ethics Standards Board for Accountants (IESBA) to coordinate efforts and has been in regular discussion with regulatory authorities.

A core element of their COVID-19 response has been the development of a series of specific COVID-19 audit related resources to help our stakeholders, and the larger accountancy community, navigate the application of the International Standards on Auditing (ISAs) in the current circumstances.

Since March, the IAASB has published six “Staff Audit Practice Alerts”.

Review the press release and alerts on the IAASB's website.

Review the press release and guidance on the IAASB's website.

In the IAASB’s ongoing response to COVID-19, guidance related to Going Concern and Subsequent Events have also been issued, and more information can be found on the IAASB’s COVID-19 Webpage.

Review the guidance for auditor reporting on the IAASB's website.

Staff Alerts under Development

A core element of their COVID-19 response is to develop Staff Alerts on several targeted topics to support the application of our standards under current circumstances. Their goal is to support the public interest and the role auditors must play in sustaining trust in financial and other external reporting.

In addition to the IAASB Staff Alert, Highlighting Areas of Focus in an Evolving Audit Environment Due to the Impact of COVID-19, they are drafting Staff Alerts on the following topics:

• Auditor Reporting
• Going Concern
• Subsequent Events
• Auditing Accounting Estimates
• Public Sector Audit Considerations

The Staff Alerts on Auditor Reporting and Going Concern will be issued next and are expected to be available within the next two weeks.

Review the press release on the IAASB's website.

The COVID-19 pandemic is a global health and humanitarian crisis. Beyond the significant challenges that lay ahead in all facets of life, the pandemic has the potential to significantly impact the way that audits are undertaken.

Review the following on the IAASB's website:

• Press release
• COVID-19 web page
• Audit considerations arising from changes due to COVID-19

Background

The COVID-19 pandemic has led to some lessors providing relief to lessees by deferring or relieving them of amounts that would otherwise be payable.  In some cases, this is through negotiation between the parties, but can be as a consequence of a government encouraging or requiring that the relief be provided. Such relief is taking place in many jurisdictions in which entities that apply IFRS Standards operate.

When there is a change in lease payments, the accounting consequences will depend on whether that change meets the definition of a lease modification, which IFRS 16, Leases defines as “a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)”.

On April 24, 2020, the Board published an exposure draft with a proposed amendment intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic. Given the urgency of the matter, the exposure draft was published with a 14-day comment period. On May 15, 2020, the Board considered the feedback received and decided to finalize the amendment with some changes.

Changes

The changes in Covid-19-Related Rent Concessions (Amendment to IFRS 16) amend IFRS 16 to

1. provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification;
2. require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;
3. require lessees that apply the exemption to disclose that fact; and
4. require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures.

The main change from the proposal in the exposure draft is that the IASB had proposed that the practical expedient should only be available for lease payments originally due in 2020. However, after having considered the feedback to the exposure draft, the IASB decided to extend this period to June 2021 to also capture rent concessions granted now and lasting for 12 months.

The IASB considered but decided not to provide any additional relief for lessors as the current situation is not as equally challenging for them and the required accounting is not as complicated.

Effective date

The amendment is effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at May 28, 2020. The amendment is also available for interim reports.

Proposed Taxonomy Update

The IASB has also published a proposed Taxonomy Update to reflect the amendment to IFRS 16. Comments on the proposed Taxonomy update are requested by June 29, 2020.

Additional information

• IASB press release
• Final amendment
• Proposed Taxonomy Update

On the Board's timelines in view of the COVID-19 pandemic, the staff recommended that the Board:

• (a) delay by one year the effective date of Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023.
• (b) extend the consultation period by (approximately) three months for the following consultation documents:
  • the Exposure Draft General Presentation and Disclosures;
  • the Request for Information Comprehensive Review of the IFRS for SMEs Standard; and
  • the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

All Board members agreed with the staff recommendations and also agreed that the exposure draft on delaying the effective date of the IAS 1 amendments should have a comment period of 30 days. The Board gave the permission to begin the balloting process for the exposure draft and no Board member intends to dissent.

On accounting for COVID-19-related rent concessions, the staff recommended that the Board amend IFRS 16 to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. Entities applying the exemption would account for the changes as if they were not lease modifications. The exemption would have to be applied retrospectively but comparative figures would not be restated. A lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application.

All Board members agreed with the staff recommendations and also agreed that the exemption would be effective immediately, when the final amendment is issued. The Board will ask the Trustees to approve a comment period of 14 days. The Board gave the permission to begin the balloting process for the exposure draft and no Board member intends to dissent. 

Note: The shortened comment periods for both exposure drafts were discussed in a DPOC call yesterday.