HOW COVID-19 IS CAUSING GAPS IN GAAP By SUSAN FIRRIOLO, CPA
TAX CORRESPONDENCE SERVICE
The coronavirus pandemic has left CPAs with a lot of balls in the air, creating a whole new ballgame when applying Generally Accepted Accounting Principles (GAAP).
8
Should COVID-19 be considered a one-time event or the new normal? Some key areas CPAs may want to pay attention to are: y Estimates y Going concern y Leases y Subsequent events y Government assistance y Current expected credit losses (CECL) y Asset impairment ESTIMATES Accounting estimates involve identifying, measuring and disclosing future amounts or evaluating an event which has occurred where information cannot be collected in time for financial reporting. Accounting estimates are difficult enough. The pandemic has made accounting estimates more complex even for those with experience and training. When using professional judgement while making accounting estimates involving COVID-19, consider the following: y Have a good understanding of the entity. y Perform a meaningful risk assessment containing information that can be applied to estimates. y Document information available at the time. y Question if all estimates are reasonable. y Disclose circumstances that change estimates after the fact. y Involve experts and evaluate their work.
NOVEMBER/DECEMBER 2020 | NEW JERSEY CPA
GOING CONCERN A going concern assessment relies on evaluating future plans for the operations of an entity. An entity is usually a going concern if management has a realistic plan to avoid liquidation. Because of the pandemic, there are many indicators of a going concern to consider, including: y A pause in operations causing less demand for services and goods y Uncertainty about future restrictions on operations and employees y Financial changes and the inability to pay down or obtain loans y Lack of resources such as materials, services and workers y Intercompany money which is no longer available y Realization and write-downs of accounts receivable and inventory y Cancelled events where money will not be recovered y Reliance on vendor credit that will no longer be available y Short-term assets which may not be recovered y Lack of government assistance LEASES Many leases have been renegotiated because of COVID-19 to reflect a decrease in the ability to pay and realize revenue. The timing is less than perfect with the crossover happening between Financial Accounting
