The COVID-19 pandemic has established itself rapidly in early 2020, affecting entire countries, communities, and families. The measures taken to contain the virus have also severely affected economic activities, which in turn have implications for financial reporting. These implications include the submission of financial statements, the measurement of assets and liabilities, and possibly an entity’s ability to continue, just to name a few.
This article will make a brief illustration of the primary accounting items with regard to confirmation, measurement and presentation for the majority of affected economic activities during the pandemic.
Enterprises should assess whether there are signs of impairment of assets at the end of each reporting period. Affected by the recent spread of the pandemic, external and internal information such as the fall in stocks and bulk commodity prices, fall in market interest rates, closure of production plants and shops, falling demand, and selling prices for goods and services all indicate that assets may be impaired.
However, only when the events after the reporting period and the information received after the reporting period provide additional evidence for the conditions that already existed at the end of the reporting period, the company should consider the above issues and information when judging signs of impairment. Similarly, when determining the recoverable amount of an asset, the relevant information obtained after the reporting period should be considered only when such circumstances exist at the end of the reporting period.
Due to the pandemic, the lessor and the lessee may negotiate to modify the leasing terms, and the lessor may give the lessee some form of the rent reduction. On 24 June 2020, the Ministry of Finance issued the “Notice on the Promulgation of Provisions on the Accounting Treatment of Rent Concession Relating to the COVID-19” (Cai kuai  No. 10).
Rent reductions and deferred payments directly caused by the pandemic have simplified methods which can be used for accounting actions under the regulations. If enterprises choose to adopt the simplified method, there is no need to assess whether there is a lease change or reassess the lease classification. Enterprises should apply this choice consistently to similar leasing contracts and may not change it at will.
As the pandemic has severely affected business activities, governments, government agencies and similar organizations around the world have introduced (or are expected to introduce) relevant measures to help affected businesses. Subsidies included direct subsidies, tax deductions and extensions of validity periods of deductible losses, lower fees, rent reductions or extensions, low-interest loans, and more.
However, not all measures can be considered as government subsidies. Enterprises should first clarify whether the above measures apply to the government subsidy accounting standards. For example, in China, low-interest loans are subject to government subsidy accounting standards, while rent reductions and exemptions are subject to leasing accounting standards.
Government subsidies in China should be recognized as assets when it is reasonably determined that the following conditions are met; that is, the enterprise meets the attached requirements and can receive subsidies. For example, when the government grants special subsidies to the affected enterprise, the subsidy can only be recognized when it is determined that the enterprise is eligible for the subsidy and meets specific conditions.
If the subsidy related to the pandemic is provided to the enterprise without any specific conditions, then the assets can be confirmed when it is reasonably determined that the subsidy can be received. However, it must be noted that receiving the subsidy itself does not provide conclusive evidence that the business has or will be able to meet the additional conditions.
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The COVID-19 pandemic has brought a lot of challenges to business development and the profitability of enterprises. Accordingly, companies affected by the pandemic will also encounter certain challenges when performing accounting treatments. Appropriate accounting treatment can help companies avoid any risk of being punished due to violations of regulatory requirements while providing a reliable reference for corporate management to understand their corporate profitability and recovery speed.