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For many organisations, COVID-19 has significantly impacted their performance, financial position and cash flows, and management and directors are looking at ways to communicate the effects of the pandemic on their financial results in the Operating Financial Review, the Directors’ Report and in the financial statements. Consideration needs to be given as to how organisations disclose these impacts to ensure that they are in compliance with both the Australian Accounting Standards and ASIC Regulatory Guide RG 230 Disclosing non-IFRS financial information and ASIC FAQs on COVID-19 implications for financial reporting and audit. Consider how to disclose the impacts of COVID-19 carefully – ASIC has views on what approaches are acceptable. Actions for management to take now
Common financial reporting questionsWhat are examples of acceptable disclosures that segregate the impact of COVID-19 in documents other than the financial statements?The following are examples of how information showing the impacts of COVID-19 on the financial performance of an entity may be presented in documents other than the financial statements such as media releases and the operating and financial review:
What are examples of disclosures of the impact of COVID-19 in documents other than the financial statements that would likely be misleading and not be acceptable?Information presented as follows is likely to be misleading and is not an acceptable method for presenting the impact of COVID-19 in documents outside the financial statements:
Can I present the impacts of COVID-19 separately on the face of the income statement?Separate presentation through additional line items of income or expense, headings or sub-totals in the income statement of material items is appropriate only when it is necessary to an understanding of the organisation’s performance. In our experience, disclosures in the notes to the financial statements will generally be sufficient for many items that are material individually. Where the effects of COVID-19 are pervasive, affecting a number of line items in the income statement, it may not be meaningful to present the impacts on the face of the income statement. Instead it may be more appropriate to disclose in the notes to the financial statements the total impact of the pandemic with a description of the circumstances and the income statement line items affected. Where it is determined that separate presentation of COVID-19 impacts on the income statement is appropriate, an organisation’s current income statement presentation format, including the classification of expenses by either function or nature, will affect the way any COVID-19 impacts are presented on the face of the income statement. Whether the impacts of COVID-19 are presented on the face of the income statement or in the notes to the financial statement, the organisation needs to develop and disclose an objective basis for identifying COVID-19 impacts in their accounting policy. Any quantitative disclosures in the income statement or in the notes to the financial statements should also be accompanied by narrative disclosures of the impact, explaining the nature of the expenses, circumstances and how they are COVID-19 related. What presentations of the impacts of COVID-19 on the face of the income statement would not be acceptable?The following presentation on the face of the income statement should be avoided:
What does an organisation need to consider when establishing an accounting policy for identifying the impacts of COVID-19?Whether the impacts of COVID-19 are presented on the face of the income statement or in the notes to the financial statements, an organisation needs to develop and disclose an objective basis for consistently identifying any impacts separately disclosed. The basis of identifying impacts as COVID-19 related and why they warrant separate disclosure should be included as a significant accounting policy. Identifying income and expenses that relate to COVID-19 may be challenging as distinguishing between income and expenses that are part of normal operations versus those that are COVID-19 related may involve significant subjectivity. Income and expenses that relate to COVID-19 should be identified on a non-arbitrary basis. In developing this accounting policy for identifying COVID-19 impacts, consideration should be given to:
When can an organisation describe COVID-19 impact as unusual or exceptional in the financial statements?Careful consideration should also be given to how separately identified COVID-19 impacts are described. If the description of ‘unusual’ or ‘exceptional’ is used, it should be reserved for items that justify a prominence greater than that achieved by separate presentation or disclosure. Organisations should also consider whether amounts are truly
unusual, for example increased cleaning costs. Compared to the previous year such costs may be unusual in amount, but on a go-forward basis it could become the new norm. Providing a narrative disclosure in such circumstances may provide users with more relevant information. Meet the teamGet to know the team of experts behind the insights. More COVID-19 Financial reporting topics
What are the methods of income statement?There are two different types of income statement that a company can prepare such as the single-step income statement and the multi-step income statement.
Which of the following item can be presented in income statement?The statement displays the company's revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit in a coherent and logical manner.
What are the two presentation formats for the income statement?The income statement can be presented in a “one-step” or “two-step” format. In a “one-step” format, revenues and gains are grouped together, and expenses and losses are grouped together. These amounts are then totaled to show net income or loss.
What are the 4 elements of income statement?What Are the Four Key Elements of an Income Statement? (1) Revenue, (2) expenses, (3) gains, and (4) losses.
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