The Financial Reporting Implications of COVID-19 on NGOs
Posted on 04 May, 2020 at 13:49
By
Epaphras Chinyakuza
The COVID-19 outbreak has
developed rapidly in 2020, with a significant number of infections. It goes
without saying that this pandemic is currently wreaking havoc on the world
economy, and it follows that there are some reporting implications to this
nightmare that we are all going through that we believe need to be taken into
consideration.
Measures taken to contain the
virus have affected economic activity, which in turn has implications for
financial reporting. Measures to prevent transmission of the virus include
limiting the movement of people, restricting flights and other travel,
temporarily closing businesses and schools, and cancelling events which has
affected the implementation of some projects. The COVID-19 pandemic crisis and
its economic effects mean that funding partners and other stakeholders need
high-quality financial information more than ever.
Preparers of
financial statements in different organisations will need to take into
consideration financial reporting standards that may be significantly impacted.
Consideration of the following standards will be important for preparers in
order to ensure that information is reliable and all material financial
information relevant to an understanding of the financial position or
performance of the organisation is appropriately disclosed.
IAS 19: Employee Benefits Considerations
It is anticipated
that a lot of employees are going to lose their jobs as a result of the global
economic situation that is anticipated to arise as a result of the Covid-19
pandemic, with some organisations losing their funding. Therefore, organisations
will need to take into account termination benefits that that are likely to be
given to employees in compensation and accounted for accordingly in the
financial statements.
IAS 21: The effects of changes in Foreign Exchange Rates
Considerations
In response to
Covid-19, the Reserve Bank of Zimbabwe has issued a pronouncement allowing all
organisations to transact using free funds (i.e. utilize funds in their Nostro
account) which had been prohibited in 2019. This may reopen a can of worms that
preparers of financial statements thought they had passed in 2019. Depending on
the period of the pronouncement there may be need to reopen the functional
currency issue again and organisations from this point forth need to constantly
be assessing their functional currency in order to ensure that they comply with
IAS 21.
IAS 37: Provisions, Contingent Liabilities and Contingent
Assets Considerations
As a result of the
Covid-19 pandemic some organisations may consider restructuring, reduction in
size or closure which may lead to provisions that are related to retrenchments
and any possible employee related obligations.
IFRS 16: Leases Considerations
In response to
Covid-19, the lessor and a lessee have renegotiated the terms of a lease as and
some lessors have decided to give their lessees payment holidays and/or an
increase to the lease term to cover the period that the specified asset is not
being used during lockdown which may result in the new payment terms requiring
the lessee to perform a reassessment. Depending on the new terms of the lease,
the lessee determining the measurement may need to determine a revised discount
rate based on current market conditions.
IAS
16: Property, plant and equipment Considerations
As a result of COVID-19 and
the measures taken to control it, property, plant and equipment is
under-utilized or not utilized for a period that projects are suspended. IAS 16
Property, plant and equipment requires that depreciation continues to be
charged in the income statement while an asset is temporarily idle.
IAS
1: Presentation of financial statements Considerations
Management should consider the
specific requirements in IAS 1 to disclose significant accounting policies, the
most significant judgements made in applying those accounting policies. All of these disclosures might be different as
a result of the impact of the virus. The extent of disclosures regarding
estimation uncertainty might need to be increased. Management should consider
the specific requirements of IAS 1 to disclose information relevant to an
understanding of the financial statements that is not otherwise disclosed.
As
KFM Consultants, we are acutely aware of our role and responsibility in
continuing to meet the needs of the NGO community. We continue to offer our Financial
Management, Governance and Sustainability service remotely and virtually.
For more information, please
contact Caroline:
Email: caroline@kfm.co.zw
Phone: +263 242 306 315
Cell: +263 717529827