Impact of Coronavirus on Financial Reporting & Auditors Consideration

  1. Inventory Measurement – Ind AS 2 and AS 2 – May be possible to write down inventories to NRV – NRV (Est. Selling Price – Est. Cost of Completion – Est. Cost Necessary for its sale) – Allocation of Fixed O/Hs is based on normal production capacity & unallocated O/Hs treated as an expense when incurred – Disclosure in FS about it.

  2. Impairment of Non-Financial Assets (E.g. L&B, Vehicles & Equipment’s, R&D, Technologies, Patents & Other Intellectual Properties) – Ind AS 36 and AS 28 – Assess at the end of reporting period, about the Nonfinancial Assets impairment based on economic conditions – COVID 19 can be consider as Indicator for its impairment – Recoverable Amount for Impairment ( Higher of Fair Values – Cost of Disposal – Value in Use) – COVID 19 shall be used as an indicators for its reduction in the value of assets – based on your assumptions and sensitivities for effects.


  1. Financial Instruments – Ind AS 109 – Applicable to – Loans, Trade & Other Rec., Investment in Debts Instruments, Financial Guarantees, Loan Commitments not measured at F.V through P&L, Contract Assets and Lease Rec. subject to Impairment Loss Rec. and measured based on Expected Credit Loss (ECL). COVID 19 may be considered as impact on the quantification of ECL & classification into 3 buckets (1 – Those with no increase in Credit Risk 2 – Increase in Credit Risk 3 – Credit Impaired) for measuring of impairment losses. – 3 Buckets is not required for T/R. Entities may need to develop more than one or more scenario considering the potential impact of COVID 19. Entities also consider regulatory actions such as loan repayment holidays and reduction in interest rates.

AS – 13 requires considering other than temporary decline in investments value. Banks and Insurance Companies need to consider impact of COVID-19 on classification of L&A into Standard, Sub Standard & Doubtful & Loss Categories.


  1. Fair Value Measurement – Ind AS 113 – Ind AS 109 & 16 requires to measure assets or liability at F.V and its recognition in P&L but Ind AS 113 requires to determine based on observable market price (Quoted in Active Market Level 1) or application of valuation tech. ( Level 2 or Level 3) – Decline Possible in FI like Equity, Bonds & Derivatives. Also carefully determine the F.V for valuation as Current Investments.


  1. Hedge Accounting – Ind AS 109 FS – Qualifying Hedge Item shall be a highly probable forecast transaction based on their business environment and its impact will record in P&L E.g. Derivative Contracts F.V such as forward curve of interest rate, foreign currency, commodity etc.


  1. Leases – Ind AS 116, AS 19(Leases) & AS 29 (Provisions & Contingencies) – If any compensation by the Govt. to the lessor for concession to the lessee, should be accounted as Lease Modification as per Ind AS 116 or may be considered as Govt Grants. Discount Rate can be used to determine PV of new lease liabilities due to risk of COVID 19. Only revised terms shall be considered only no anticipated expected revisions shall be considered.



  1. Revenue – Ind AS 115 & AS 9 – An increase in sales returns, decrease in volume-based discounts, higher price discounts and other facts should be considered in estimating the amount of revenue to be recognized. It also requires disclosure of the information about the nature, timing, extent and uncertainty of cash flows related to revenue. AS 9 applicable entities may also postponed revenue recognition due to uncertainty of cash flows related to COVID 19 and also disclosures shall be required of the circumstances resulting in postponement of revenues.





8. Provisions, Contingent Liabilities and Contingent Assets – Ind AS 37 & AS 29

  • Onerous Contracts – are those contracts in which unavoidable costs in meeting the conditions of contract exceeds the economic benefits arising from it due to delay in supply of goods, increase in labour or material costs etc. and there may be possibilities that the existing contracts become onerous due to COVID – 19. Now, the management shall require to consider onerous contracts and its related assets to be recognized for its impairment.
  • Penalty – also arises due to not meeting the conditions of the agreed conditions in supply of goods is required to be considered under Ind AS 115, Revenue from Contracts with Customers.
  • Management shall be required to disclose the information whether the contracts become onerous or not?
  • Restructuring costs – is to be recognized if its relating provisions are met and the entity have proper plan for its restructuring and its evidence that they have already started to implement this plan like dismantling their P&M or selling their assets etc.
  • Insurance claims – Entities only recognized insurance claims if their recovery is certain and the insurance companies already accepted the claims and proceedings have been already began relating to it.
  • As per Ind AS 37 – provision can be recognized only if entity has present obligations and there is probability to settle the obligations and expected estimate can be made. Therefore, the entities shall be required to disclose the nature of the obligations and expected timing of the outflow of resources.
  • As per AS 29 – Management should require to disclose that it has assessed whether executory contracts are onerous due to impact of COVID -19. If, the management is unable to assess whether some of the executory contracts have become onerous due to the inadequacy of information, the same should be disclosed.





  1. Modifications or Termination of Contracts or Arrangements – Entities should consider the requirements of all applicable Ind AS’s or AS’s or Any Guidance Notes in order to carry out the modifications or terminations of existing contracts.

Entities to Whom Ind AS is applicable

Entities to Whom AS is applicable

Ind AS 19, Employee Benefits (WTD Only) 

AS 15 Employee Benefits (Revised 2005) (All Directors)

Ind AS 102, Share – Based Payments

Guidance Note on Accounting for Employee Share Based Payments

Ind AS 109, Financial Instruments and Ind AS 32, Financial Instruments – Presentation

Guidance Note on Accounting for Derivative Contracts (Issued 2015)

Ind AS 104, Insurance Contracts For insurance companies this is routine; events like earthquake, huge floods, war situations, etc.

Ind AS 115, Revenue from Contracts with Customers

AS 7 Construction Contracts (revised 2002), AS 9 (Revenue Recognition) and Guidance Note on Accounting for Real Estate Transactions (Revised 2012)



  1. Going Concern Assessment – Ind AS 1 Presentation of Financial Statements & Ind AS 10 Events after the Reporting Period & AS 1 Disclosure of Accounting Policies & AS 4 Contingencies and Events Occurring After the Balance Sheet Date (revised 2016) – Normally FS are prepared on the assumption that the entity is based on going concern concept and its operations will continue. Management should consider the impact of COVID 19 and the measures taken on its ability to continue as a going concern. The impact of this should be considered after the reporting date and the management should looks upon to liquidate the entity or to cease trading or has No realistic alternative but to do so, the financial statements should not be prepared on going concern basis. Required Disclosures as per Ind AS 1 related to uncertainty that results in doubt of continue as a going concern shall be disclosed.
  2. Income Taxes – Ind AS 12 & Accounting for Taxes on Income – AS 22 – COVID 19 could affect forecasted profits which results in the reduction of deferred tax liabilities due to certain factors as discussed above like assets impairment etc. and also consider the recovery of deferred tax assets considering the uncertainties due to COVID 19 and measures will be taken to control it by the entity. Management should disclose any specific estimates made in respect of above as per Ind AS 1 (Going Concern).
  3. Consolidated Financial Statements – Ind AS 110 & AS 21 (Revised 2016) – As per Ind AS 110, FS of Parent and Subsidiaries used in the preparation of the CFS are usually drawn up to the same date. However, the difference between the reporting dates should be not more than 3 Months as per Ind AS 110 & 6 Months as per AS 21.


  1. Property Plant and Equipment (PPE) – Ind AS 16 & AS 10 – revision of the useful and its residual life shall be done on annual basis and impact of COVID 19, assets may result in under/no utilization but as per standards the depreciation shall be charged even if the assets remain idle. If there is change in the useful and residual life after the impact of COVID 19 shall be considered as a change in an accounting estimate’s in accordance with Ind AS 8 & AS 5.





14. Presentation of Financial Statements – Ind AS 1

  • Breach of Loan Covenants (Affirmative, Negative or Financial) – E.g. Current Ratio, Payment of All Taxes, Maintenance of Specific DSCR, classification of liabilities into CL/NCL etc. There may be above type of instances of breach of loan covenants due to COVID 19 which may trigger the liability becoming due for payment and liability becoming current. However, as per paragraph 74 of Ind AS 1, such a liability shall not be classified as current, if the lender agreed, after the reporting period and before the approval of the financial statements for issue, not to demand payment as a consequence of the breach.
  • Sources of estimation uncertainty under Ind AS 1 – Impact of COVID 19 may results in uncertainty which effects the estimated recognition of amounts in the BS resulting in the adjustments to the Assets & Liabilities and entities shall be guided as per paragraph 125 to 133 of Ind AS 1.
  • Comparative Information – Ind AS 1 requires presentation of the comparative information and users must be able to compare the FS of an entity with the FS of other entity in order to find out the trends, performance, cash flows and its financial position and must consider the impact of COVID 19 for it.


  1. Borrowing Costs – Ind AS 23 & AS 16 – if there is a temporary delay in which the active necessary developments are interrupted then then there will be a suspension of capitalization of interest and the entity should also consider this while evaluating the impact of COVID 19.


  1. Post Balance Events – Ind AS 10 & AS 4 – Events occurring after the reporting period shall be divided into two categories – a) Adjusting Events (Consider in the FS) & b) Non-Adjusting Events. Entities must disclose significant recognition and measurement uncertainties that might have been created by the outbreak of the COVID -19 in measuring various assets and liabilities. Disclosure should be made in the report of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise.


  1. Interim Financial Reporting – Ind AS 34 & AS 25 – requires updation of the information in the Annual FS and entity shall also include in its Interim Financial Report an explanation of events and transactions that represent material changes and commitments affecting the financial position of the enterprise. This implies that additional disclosure should be given to reflect the financial impact of the COVID-19 and the measures taken to contain it. Where significant, the disclosures required by paragraph 15B in Ind AS 34 should be included.




Further, it may consider specific disclosures and its presentation in the Management
Discussion & Analysis Section of the Annual Report about the impact of COVID – 19 on the financial position of the enterprise.