Author
Victor U.
Victor U.

We have experienced COVID-19 impacts on working arrangements, our community and the economy. These impacts may result in material changes to the financial performance and position of many public sector entities. As we are getting closer to reporting season, this blog talks about financial reporting considerations in our changed environment.

Please also continue to discuss your individual circumstances with your engagement leader.

Financial reporting considerations

Preparers of financial statements should consider external events that have affected their operations, transactions and balances. These will include economic responses that the government provided to help with resilience and recovery strategies. Broader economic impacts may also result in changes to revenue earned, ability to recover receivables, reduced values of assets and contractual obligations.

As financial statements are prepared, understanding the underlying reasons why transactions and balances have changed will give assurance to preparers and auditors on the completeness and accuracy of the statements.

We have identified some key considerations for all public sector entities when preparing financial statements:

  • Reconsider the reliability of controls over financial statement data sources. Identify changes to controls from new working arrangements, which increase the risk of misstatements in financial reports.
  • Consider the estimates and judgements made to prepare financial statements. They may have materially changed from prior years and may be more volatile and less reliable because of broader economic impacts.
  • Consider how operational liquidity and longer-term sustainability may be challenged as the value of investments change.

Short-term financial viability and going concern

Entities should be assessing going concern each year, but this year it is even more important to make this assessment. Going concern means that an entity expects it will continue to operate for the 12 months after management and auditors sign the financial statements. Assessments of going concern involve:

  • forecasting revenue and expenses for at least the 12 months following issue of the statements, ensuring that there will be sufficient cash to pay operating expenses and make timely payments on debt
  • identifying positive and negative financial trends
  • managing expenses and accurately forecasting revenue
  • considering how external events will affect continued financial performance.

Financial reporting areas affected by COVID-19

We have published a new fact sheet on identified areas in financial reports that may be materially impacted by COVID-19. The fact sheet includes key consideration points for management relating to the following transactions and balances:

  • cash flow management and going concern
  • recoverability of receivables
  • valuation of property, plant and equipment
  • fair value of financial assets and liabilities
  • accounting for rent concessions by lessees
  • new disclosures explaining changes in position and performance, and the impact of COVID-19
  • changes in contingent liabilities and guarantees
  • events after reporting date
  • other accounting standards.

Additional resources

The Australian Accounting Standards Board (AASB), the Auditing and Assurance Standards Board (AUASB) and the Australian Securities and Investments Commission (ASIC) have published guidance for preparers and auditors of financial statements, including:

Each body has a COVID-19 web page that is regularly updated, including the frequently asked questions (FAQs).

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