Under IAS 11, when items of income or expense are material, a company discloses their nature and amount separately, either on the face of the income statement or in the notes. A company’s approach for COVID-19 will depend on its ability to determine the impacts on a non-arbitrary basis (i.e. quantify them reliably) and on the pervasiveness of those effects to the financial performance of the company.
Quantifying the impacts of COVID-19 on a non-arbitrary basis may require significant judgment – distinguishing between income and expenses that are part of normal operations versus those that specifically relate to COVID-19. As a company adjusts its operations to the new reality, making that cut is becoming more and more challenging. If the impacts cannot be determined on a non-arbitrary basis, we believe the company should not present them on the face of the income statement, but consider disclosure in the notes, providing quantitative (when possible) and qualitative information and stating whether only some, or all, of the effects have been identified.
In some cases, a company may be able to determine the impacts of COVID-19 but find that they are pervasive – e.g. affecting nearly all line items of the income statement. In that case, we believe it may be impracticable or less meaningful to present the impacts on the face of the income statement. Instead, the company should consider disclosing them in the notes.
Ultimately, companies need to ensure that the chosen presentation is not misleading and is relevant to the users’ understanding of financial performance.