Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Pondering impact of coronavirus prevention steps on financial statements. An auditor’s perspective.

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If you are an auditor getting ready to issue opinions on client financial statements, you might want to ponder the subsequent event implications of the U.S. shutting down large portions of the economy this week. Might want to take a closer look at going concern assumptions.

If you happened to have slept well last night, you might ponder the impact on the financial statements you released a couple weeks ago.

Subsequent events

Here are some initial thoughts for consideration as disclosable material subsequent events and perhaps contingent liabilities:

  • Refunds for half a semester of room and meals for colleges
  • Refunds for cruise lines
  • Refunds for airlines
  • Cancelled rooms and returned prepayments for hotels
  • Cancelled conference venues, cancelled food and supplies, and returned deposits for conference presenters

(Hint: that performance obligation at 12/31/19 might not ever be recognized. Could it actually be something closer to an accounts payable instead of deferred revenue?)

Going concern

Ponder the going concern issues in just a few industries:

  • Cruise lines – cruises cancelled for two months or more, refunds to passengers on those cruises, drop in cash flow from less passengers making reservations many months in advance
  • Airlines – flights cancelled from Europe for 30 days, drastic curtailment of schedules, loosened refund policies for those flights not cancelled
  • Hotels – dramatic drop in occupancy rates for next one or two or three months, refunds for cancellations for who knows how many months out
  • Conference centers and other large venues – cancellation of all refundable deposits and maybe some non-refundable deposits for events for the two or four months; that space can’t be time transported to the fall or next spring
  • Oil industry upstream, midstream, and downstream – dramatic reduction in drilling, completion, refining, and selling from demand side drop (coronavirus fears and recession) and supply side disruption (unlimited production from Russia and Saudi Arabia)
  • Professional basketball, soccer, baseball, racing, boxing teams – lost revenue from spectators for tickets, concessions & parking, lost revenue from television rights
  • Any company or non-profit that generates a large portion of its annual income from conferences
  • Performing arts companies – curtailment of productions for next one or two or three months

Ripple effects

Might also consider ripple effects on vendors and supplies to all those industries, such as

  • Food supplies to all those events
  • Concession operators in airports
  • Unions for teacher, performing arts staff, airline workers, and hotel staff whose members will not be getting a paycheck for the next one or three months
  • Charities who depend on contributions from people who are employed and previously were confident their jobs would continue

Might be other industries not yet affected, such as Hollywood movie or television show production.

Written by Jim Ulvog

March 14, 2020, 9:26 am at 9:26 am

3 Responses

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  1. Great points Jim. I would just add that as auditors, our approach should be – has management considered these things in their going concern assessment?

    As far as reports release a couple of weeks ago, I wouldn’t think we would have an obligation to revisit them.

    James Bennett

    March 14, 2020, 9:56 am at 9:56 am

    • Hi Jim:

      Good point. The conversation ought to be phrased as you mentioned: how have you, management, considered the current developments in your assessment of going concern. For some entities, such as many of my small clients, I have to prompt the discussion. Usually it is a very short conversation. For most entities this will be minor issue, but in some industries will be a painful conversation. Just ponder a cruise line: how would a company survive the loss of a quarter’s worth of revenue?

      In terms of freshly released financial statements, probably not an issue for overwhelming majority of companies. However, if I had just released my opinion on a cruise line, I’d be concerned.

      Ah, just thought about another issue for a few companies. A 20% drop in the stock market might be an issue for some.

      Thanks for taking the time to comment.

      Jim

      Jim Ulvog

      March 14, 2020, 10:39 am at 10:39 am

  2. […] 3/14/29, I was Pondering impact of coronavirus prevention steps on financial statements. An auditor’s perspective. The AICPA report goes into far more […]


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