Effects of the coronavirus pandemic on commercial accounting

Now that the World Health Organization (WHO) has classified the spread of the coronavirus as a pandemic since 11 March 2020, more and more companies worldwide are asking themselves to what extent the coronavirus will affect their business and the overall economy in the short, medium and long term. On 4 March 2020 and on 25 March 2020, the IDW published technical notes on the “Effects of the spread of the coronavirus on financial statements as of 31 December 2019 and their auditing”.

Effects on accounting as of 31 December 2019

Balance sheet and profit & loss account: Generally, the spread of the coronavirus is a non-adjusting event

In the opinion of the German Institute of Auditors (IDW), it can generally be assumed that the occurrence of the coronavirus is to be classified as a non-adjusting event as it is a worldwide risk, since the rapid spread of the virus occurred from January 2020 and the spread between the virus becoming known at the beginning of December 2019 and the reporting date of 31 December 2019 was limited only to certain regions. This means that the accounting consequences of the coronavirus pandemic are only to be taken into account in financial statements with a reporting date after 31 December 2019, both under the German Commercial Code and IFRS.

Annex: Supplementary reporting

The supplementary reporting (section 285 no. 33 and section 314(1) no. 25 of the German Commercial Code (HGB)) envisaged for medium-sized and large corporations (and similar) as well as in consolidated financial statements (section 285 no. 33 and section 314(1) no. 25 HGB) will become a key topic for many companies in their notes to the financial statements for the 2019 financial year, as in this respect developments relating to the coronavirus will generally be considered to have effects on the 2019 accounting. Accordingly, the nature and financial effects of ‘events of particular significance’, i.e. events which are likely to influence the true and fair view conveyed by the annual financial statements as at the balance sheet date, must be explained in the notes. Supplementary reporting is also suitable as a place for disclosing risks that could endanger the company’s existence.

Management report

In the management report, the coronavirus will in many cases be reflected in both the risk report and the forecast report. The forecast report may make use of an exception whereby it is not necessary to state the usual types of forecasts of point, interval or qualified comparative forecasts, but only (basic) comparative forecasts can be used. However, it is not possible to completely dispense with forecast reporting.