Accounting support measures for COVID-19 in Singapore

Concerning the Covid-19 Accounting consequences, based on the Institute of Singapore Chartered Accountants‘ assessment, Pandemic Covid-19 is a non-adjusting event for entities with a 31 December 2019 financial reporting date.

The Institute of Singapore Chartered Accountants justifies this on the basis that although the first cases of Covid-19 surfaced in December 2019, there was no evidence of an outbreak and no adverse change in economic and market conditions as of 31December 2019. Therefore, deteriorating economic and market conditions in 2020 can be attributed to fallout from the resurgence of Covid-19 cases after December 2019, such as regulatory actions like travel restrictions and quarantine measures by several countries. These subsequent events are not indicative of conditions that existed as of 31December 2019.

The Institute of Singapore Chartered Accountants then adds that it is critical for organizations to differentiate between what is a direct outcome of the Covid-19 outbreak and what may have occurred from other conditions that existed prior to the end of the reporting period. Therefore, entities should note that adjustments to any amounts reported in their financial statements at year-end 2019 are not the result of the subsequent impact and disruption of the pandemic in 2020.

Firstly, in February 2020, the listing rules of the Singapore Exchange were strengthened so that:

1. Immediate disclosures are required for material changes in an issuer’s short-term earnings outlook caused by general trading trends or specific events or developments during its business that may be likely to materially affect its earnings.

2. Guidance was provided on what to do when developments are underway or when there is insufficient information to disclose the accounting consequences with certainty.

Secondly, in April 2020 the Singapore Exchange also expressed its expectations for issuers’ disclosures during COVID-19, emphasizing the need for issuers to provide timely and quality information, particularly on how the pandemic affects their operations and finances. The Singapore Exchange provided a list of areas for issuers to consider:

Finally, the ability of entities to obtain and provide financial statements or information, as well as the ability to hold annual general meetings, may be affected by the COVID-19 situation. In April 2020, the Accounting and Corporate Regulatory Authority and the Singapore Exchange Regulation provided automatic extensions for the publication of unaudited financial results at year-end and the annual general meetings and annual returns.

Covid-19 has had a significant impact on businesses. The five most critical issues to consider are going concern and liquidity, impairment assessment, contract amendments, fair value measurement, and government assistance and income tax.

Executives affected by the crisis are naturally concerned about the survival of their organizations. The key to following your organization will be your cash flow.

In the first instance, when preparing financial statements, management must assess a company’s ability to continue as a going concern and determine whether the going concern assumption is appropriate.

Secondly, given the unpredictability of the potential accounting impact, there may be significant uncertainties that cast doubt on the company’s ability to continue as a going concern.

Finally, the degree of consideration required, the conclusion reached, and the level of disclosure required will depend on the circumstances of each case, as not all businesses are affected in the same way by Covid-19 accounting consequences.

It should be remembered that at the end reporting period, companies are required to assess whether there is any impairment of non-financial assets. Indeed, an asset is said to be impaired when a company is not able to recover its carrying amount, either by using it or selling it.

Firstly, the measures to stop the spread of the disease have had a negative accounting consequences. Indeed, manufacturing plants may have been temporarily closed, travel and import/export restrictions may be considered as an indicator of impairment.

Secondly, when assessing impairment, companies are required to determine the recoverable amounts of assets. This requires an estimate of expected future cash flows and expectations of changes in cash flows.

Businesses affected by the Covid-19 outbreak may experience cash flow problems (negative accounting consequences) due to disrupted operations, higher operating costs, or lost revenue. As a result, they may need to obtain additional financing, modify the terms of debt agreements, or obtain waivers if they no longer meet covenants. If this is the case, they will need to determine whether any changes to the existing contractual arrangements represent a material change or potentially a termination of the contract.

As a first step, companies are required to measure some of their assets and liabilities at fair value. This is an estimate of the specific exit price at a date based on assumptions that market participants would make under current conditions.

Secondly, when making valuations and judgments to measure fair value, the company must consider the conditions and related assumptions that were known or knowable to market participants.

Finally, companies should also consider disclosing related information that could reasonably be expected to influence the decisions that users of general-purpose financial statements would make based on those statements.

Support measures for individual industries as well as broader economic stimulus packages have been put in place. These measures include direct subsidies, tax exemptions, tax cuts and credits, extension of the expiration period of unused tax losses, reduction of government levies, rent reductions or deferrals, and low interest loans.

All of these measures have an impact on financial reporting. Relief measures may fall within the scope of income tax, government grants, leases or financial instruments standards and the accounting may be different in each case.

Finally, one of the most important factors to consider when accounting for any tax effect is whether the relevant government has substantively enacted the relevant legislation. Companies should determine whether changes in tax rates and laws have been substantively enacted by the balance sheet date. The characteristics of any tax relief or rebate should be assessed to determine whether it should be accounted for as a reduction in income tax expense or the receipt of a government grant.