The financial reporting implications of COVID-19 on NGOs.
Posted on 16 November, 2020 at 10:46
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.
For more information, please contact Michelle:
Email: information@kfm.co.zw
Phone: +263 242 306 315
Cell: +263 773 015 746