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Running Head: COVID – 19 AND FINANCIAL ACCOUNTING 1

COVID – 19 AND FINANCIAL ACCOUNTING 2

COVID – 19 and Financial Accounting

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Abstract

It is clear that the diverse economic ramifications of the pandemic are far reaching, diverse and huge. COVID – 19 has been having an economic effect on organizations from travel and trade restrictions to additional limits on the aspect of production. These economic impacts of the pandemic have increased consequences for the auditing and accounting of management reports and financial statements of the affected corporations.

COVID – 19 and Financial Accounting

Introduction

The World Health Organization declared the coronavirus outbreak to be a pandemic with most government taking measures that are stringent so as to delay or contain the spread of the virus. Some of the actions taken while responding to the spread of the virus have led to substantial disruption of business operations as well as a great increase in uncertainty in economy with currency exchange rates and asset prices that are more volatile. It has also marked a decline in the rates of interest in the developed economies. The conditions and events created by COVID – 19 have come up with a leave of risk that organizations may not have gone through and could lead to implications for financial statements. Besides, despite the increased credits this year, the existing assumption is that the Federal Reserve might not raise its rates in policy up to until 2023.

According to research, the effects of COVID – 19 has been evolving rapidly thus taking a toll that is tragic on not only human life but has been resulting in volatility in the capital markets globally. Most of the companies are somewhat getting forced to address the effects on their businesses including financial and accounting reporting implications (Baker, et.al, 2020). Global responses towards the coronavirus outbreak have continued to evolve rapidly and has had significant influences on financial markets and could have accounting implications for numerous entities. As the pandemic augments in both duration and magnitude, diverse corporations have been experiencing conditions that are mainly associated with a general downturn in economy. This comprises of; but not limited to:

· Furloughs and Layoffs

· Reductions in the productivity due to reduced demand.

· Increment of inventory layoffs

· Vast declines in discretionary spending of the consumers

· Increase in the rates of unemployment

· More growth in government intervention

· Liquidity concerns

· Deteriorating credit

· Financial market erosion and volatility.

The continuation of the circumstances above may lead to a broader downturn in economy that may have prolonged negative effects on the financial results of a business (Ramelli, et.al, 2020). The effects of COVID – 19 have led to a substantial deterioration in economic conditions for numerous organizations, as well as an increase in uncertainty for others; these effects include:

· Trade with states that have been affected significantly by COVID – 19

· Dependence on supply chains or have facilities of production in states hugely impacted by COVID – 19

· Operations of businesses hit by the restrictions which have been imposed by the state or a demand fall for their services or products.

· Certain kinds of investment properties such as industrial and retail properties could be affected considerably by the pandemic.

· Sectors such as education, insurance, manufacturing, construction, retail, entertainment, tourism and travel have been impacted in a major way.

Reflecting Risks

According to research, COVID – 19 could possibly have huge effects when it comes to the premiums on entity specific risk and risk free premiums such as forecasting risk, country risk and financing risk that gets used in the determination of the suitable rates of discounts to the discount cash flows in the future (Conlon, et.al, 2020).

Most of the businesses are supposed to consider the potential impairment when it comes to non-financial properties. The IAS 36 needs that both willingness as well as indeterminate assets that are intangible get verified for damage at a minimum each year. Managements are supposed to consider if the COVID – 19 as well as the events undertaken to regulate it are most probably expected to minimize upcoming in flows in cash or amplify functioning and diverse costs for certain reasons.

Going Concern

Different managements are supposed to consider some of the potential implications when it comes to COVID – 19 as well as some of the measures taken to control it when evaluating and assessing the ability of an entity to go on as an augmenting concern. An organization is not a going concern anymore in case the management intends to either cease trading or liquidate the firm to offer alternative and realistic management practices (Kouzy, et.al, 2020).

In addition, the stakeholders of an entity are supposed to get interested in the effect of coronavirus as well as some of the measures undertaken to contain its spread.

Conclusion

From the above research, it is clear that most of the companies tend to be affected by the coronavirus pandemic either indirectly or directly and the amplified economic risk and uncertainty could have substantial implications in financial reporting. The COVID – 19 pandemic has been affecting major financial and economic markets and virtually all governments and industries have been facing challenges that are associated with different economic conditions which result from efforts that address it.

References

Baker, S. R., Bloom, N., Davis, S. J., Kost, K. J., Sammon, M. C., & Viratyosin, T. (2020). The unprecedented stock market impact of COVID-19 (No. w26945). National Bureau of Economic Research.

Conlon, T., & McGee, R. (2020). Safe haven or risky hazard? Bitcoin during the COVID-19 bear market. Finance Research Letters, 101607.

Kouzy, R., Abi Jaoude, J., Kraitem, A., El Alam, M. B., Karam, B., Adib, E., ... & Baddour, K. (2020). Coronavirus goes viral: quantifying the COVID-19 misinformation epidemic on Twitter. Cureus, 12(3).

Ramelli, S., & Wagner, A. F. (2020). Feverish stock price reactions to covid-19.