Our Covid-19 financial reporting resource centre provides guidance on a broad range of financial reporting topics impacted by the Covid-19 outbreak. It covers both annual and interim financial statements.
What’s the issue?
For calendar year end companies, the 2020 interim reporting period will be the first reporting period when the impacts of the Covid-19 coronavirus outbreak are reflected in the financial statements – i.e. it will affect the measurement and recognition of assets and liabilities, income and expenses.
IAS 34 Interim Financial Reporting generally requires that all events and transactions are recognized and measured as if the interim period were a discrete stand-alone period – i.e. there are generally no recognition or measurement exemptions for interim financial reporting. [Insights 184.108.40.206]
Condensed interim financial statements (hereafter referred to as ‘interim financial statements’) typically focus on changes since the last annual financial statements. Companies are required to provide an explanation of events and transactions that are significant to an understanding of the changes in their financial position and performance since the last annual reporting date. Information disclosed in relation to those events and transactions updates the relevant information presented in the most recent annual financial report. Given the rapidly changing economic outlook and trading conditions, information in 2020 interim financial statements may, for many companies, comprise more than the usual update since the last annual financial statements. [IAS 34.15]
If changes in circumstances have made significant disclosures in the last annual financial statements less relevant, then a company needs to consider providing additional supplementary disclosures in its interim financial statements. [Insights 220.127.116.11]
Although many disclosures required by other IFRS® Standards are not mandatory in interim financial statements, in the current circumstances, companies may need to provide these disclosures to ensure that the interim financial statements provide relevant and reliable information and adequate level of disclosures and transparency to the users of those statements. beyond what is typically disclosed.
Getting into more detail
Recognition, measurement and disclosure in interim financial statements
Generally, items are required to be recognized and measured as if the interim period were a discrete stand-alone period. However, there are specific requirements for income taxes. [Insights 18.104.22.168]
We address below some of the key areas that companies may need to consider when preparing their 2020 interim financial statements. Whether they are relevant depends on the company’s specific circumstances – i.e. the nature and extent of Covid-19 impacts on the financial position, performance and cash flows of the company.
Management’s going concern assessment may be significantly affected by the current circumstances.
The considerations that apply for the going concern assessment when preparing annual financial statements also apply for interim financial statements. When assessing the uncertainties associated with a company’s going concern assumption, management takes into account all available information for a period of at least 12 months from the date of the interim financial statements, including whether a company will have sufficient liquidity to continue meeting its obligations as they fall due. For example, when a company with a calendar year end prepares its quarterly interim financial statements at 31 March 2020, it considers information for the period until, but not limited to, 31 March 2021 when assessing whether the going concern assumption is appropriate. [Insights 22.214.171.124, 35]
If there is a material uncertainty about the company’s ability to continue as a going concern at the date on which the interim financial statements are authorized for issue, then that uncertainty is disclosed in those interim financial statements. This is the case irrespective of whether it was disclosed in the most recent annual financial statements. In addition, disclosure is required when management concludes that there are no material uncertainties but reaching that conclusion involved significant judgement (a ‘close call’). [Insights 1.2.80, 126.96.36.199]
For further information on Covid-19’s impact on going concern, see our blog on
Impairment of non-financial assets
Reviews for indicators of impairment and any resulting tests for impairment of non-financial assets are performed at the interim reporting date in the same manner as at the annual reporting date. [Insights 188.8.131.52]
Companies may have tested their goodwill and intangible assets1 for impairment under IAS 36 Impairment of Assets when preparing their latest annual financial statements. However, given the current economic circumstances, there may be indicators of impairment at the interim reporting date that cause these assets (or other non-current assets) to be tested again for impairment. Therefore, companies may have to carefully reassess and update the cash flow projections and discount rates used in calculating the recoverable amount.
If a company recognizes a material impairment loss on non-financial assets, then it must provide in its interim financial statements an explanation of and an update to the relevant information included in the last annual financial statements. IAS 36 provides relevant disclosures to be considered in this regard. [IAS 34.15B(b), 15C]