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Are you a private company and have not issued your 2019 audited financial statements yet?  Maybe the business interruption of the COVID-19 pandemic put your resources elsewhere or maybe the decrease in commodity prices had you putting off your 2019 audit, but now you’re ready to get the financial reporting for 2019 behind you. Now that we are approximately six months past year end there are some things to consider to ensure you are delivering the financial statements your stakeholders are looking for.

ASC 606 Implementation
Do I need or want to implement ASC 606 for the year ended December 31, 2019 (assuming a calendar year-end)?  Recently the Financial Accounting Standards Board (FASB) voted to extend the one-year effective date for all nonpublic entities that have not yet issued their financial statements. Read more about this recent vote here. The effective date will be extended to annual reporting periods beginning after December 15, 2019.  If you are inclined to delay the adoption of ASC 606 and are backed by private equity (or other substantial investors), it would be prudent to discuss this delay with them.  The investors may prefer you to adopt ASC 606 to be consistent with other portfolio companies.

Triggering Events
Is the impact of COVID-19 a triggering event that would cause me to consider the impairment of intangible assets or long-lived assets on my 2019 financial statements?  Triggering events differ for intangible assets and long-lived assets. The relevant guidance for intangible assets is covered in ASC 350 while ASC 360 provides guidance for long-lived assets.  As COVID-19 became a global issue in 2020 the guidance for subsequent events found in Topic 855 should be considered.  COVID-19 would likely not be accounted for as a recognized subsequent event for companies with calendar years ended December 31, 2019. However, companies need to be careful that they distinguish COVID-19 related triggers from other possible triggers that could represent conditions that existed prior to December 31, 2019.  If the latter is the case the impact of those conditions into 2020 may be recognized as subsequent events.

Subsequent Events
What do I need to disclose related to subsequent events?  The impact of COVID-19 has users of financial statements expecting to see subsequent event disclosures related to COVID-19.  If your company received a PPP loan as a result of the CARES Act, the terms of that financing should be disclosed like any other financing received subsequent to the year-end.  In addition, the impact of COVID-19 has been far-reaching leaving almost no business or industry unaffected.  A company should disclose the current and potential impacts.  For December 31, 2019, financial statements that have not been issued, financial reporting impacts will likely be non-recognized subsequent events that should be disclosed.  For example, companies may disclose the possibility of supply chain disruptions or loss of major customers or revenue streams.

Looking Forward
What do I need to consider regarding going concern?  Management has a responsibility to determine whether there are conditions and events that raise ‘substantial doubt’ about the company’s ability to continue as a going concern for a period of one year from the date of the audit opinion, not one year from the date of the balance sheet.  This look-forward was implemented a couple of years ago and the later your 2019 financial statement is issued the further you will have to look forward.  For example, if your 2019 financial statements are dated July 31, 2020, you will need to consider your ability to continue as a going concern until July 31, 2021.  Do you have a substantial amount of debt coming due prior to July 31, 2021?  Are you now out of compliance with your debt covenants?  Will you be able to meet your current obligations as they come due through July 31, 2021?  These are just a few of the considerations management must consider.  For many companies, a detailed going concern analysis may not have been necessary in years past, but the impact of COVID-19 will have changed that for many companies. 

Our team can help you review these considerations and look to the future as they skillfully provide audits, reviews, and compilations of clients’ financial statements, as well as employee benefit plan audits, internal controls evaluations, and other forms of assurance. Contact us with any questions you might have.

Erick Wegmann

ASSURANCE PARTNER

713.726.5708
Email Me

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