How COVID-19 is Affecting Accounting Practices

Whether a freelance bookkeeper or a corporate accountant, the situation surrounding the COVID-19 disease is undoubtedly affecting you in previously unforeseen ways. Consequently, all areas of accountancy are being affected, from revenue recognition to asset impairments.

SEC Relief

Meeting SEC filing deadlines by public companies may be challenging due to COVID-19. Under certain circumstances, additional time is allowed for filing disclosure reports.

Effects on Meetings

Field auditors will be facing challenges because of the pandemic. The Center for Audit Quality, CAQ, affiliated with the AICPA, advises professionals to screen examiners’ statements for when to schedule planned audits and how to conduct reviews. The CAQ publishes a monthly report online regarding regulator and legislative standards and broader financial reporting changes influencing public company audits.

Increased Complexity of Fair Value Measurement

COVID-19 has thrown a monkey wrench into fair value measurements. The meaning of fair value, the amount an asset would bring if sold in an orderly transaction, has been turned on its head. For example, consider the following:

• Orderly operations dictate fair value. Transactions under stress are not tidy. Industries such as hospitality, travel, and amusement parks, just to name three, are showing financial burden creating distress sales and liquidations.
• Measurement dates are generally the date of the financial statement. To determine the fair value, look at the measurement date. Because of severe market volatility, however, such reporting may be out-of-date before the market reopens the following day. 
• Market participants make assumptions determining fair value. If market conditions change daily, what assumptions does a market participant make?
• Principal markets may no longer be the most profitable markets. Standard mechanisms for selling goods and services are changing abruptly, with pricing changing commensurately.
• The highest and best use as the consideration incorporated to determine fair market value for a non-financial asset is being affected by COVID-19. Some companies have had to reuse assets, such as cruise ships turned into hospitals and automakers retooling to make ventilators. What is the highest and best use in these cases?

Accounting may be entering new phases of practice techniques and applications. Only time will tell what regulatory and legislative direction for standards ensues as a result of this pandemic.

This article was originally published on davidauercpa.com