It is no secret that the COVID-19 pandemic has impacted nearly every aspect of everyday life for the past 18 months. Individuals and businesses alike have quickly adapted to new social norms and professional environments in what could be considered the first major step towards normalcy. The second piece of the puzzle for businesses is knowing where management should increase focus while preparing financial statements.

The COVID-19 pandemic imposed a tremendous burden on management’s financial reporting task. The pandemic inherently caused uncertainty about the current economy, the future economy, and the financial wellness of each individual business going forward which are all essential elements in the financial reporting process. From the perspective of a CPA, there are three key areas requiring significant professional judgment that management should continue to focus on.

1) Going concern
The COVID-19 pandemic negatively impacted many businesses across the globe. Management should always assess the ability of its entity to continue as a going concern by considering existing and possible future effects. The presence of “substantial doubt” may be more likely in the current economic climate and management should consider every possible element that could create this substantial doubt. More emphasis should be placed on future projections and industry specific components including but not limited to supply chain management, labor constraints and buyer trends. For audit purposes, management and those charged with governance should keep in mind that per the US GAAP Financial Reporting Framework, the look-forward period is one year from the date the financial statements are issued or available to be issued, unless otherwise specified.

2) Ethical decision making
A quintessential element of an accountant in a financial reporting role is maintaining integrity and transparency as to promote ethical decision making across the entity as a whole.
The COVID-19 pandemics negative effects inherently increase pressure on any business to perform. The minimum goal of maintaining prior year financial performance and the intended goal of year-over-year growth are still in place, while the operational side of the business faces more challenges than ever. Accountants filling the financial reporting roles should ensure that under no circumstances will they deviate from the Code of Ethics for Professional Accountants.

3) Internal controls over financial reporting (ICFR)
Businesses worldwide have adapted to virtual working arrangements in response to the COVID-19 pandemic social distancing requirements. Even though businesses have continued to migrate back to office spaces in some capacity, the emergence of the Delta variant of the virus have slowed that progress overall. When management performs its risk assessment over key controls they may notice that some key controls may be altered or changed based on the location, timing and ability of the control operator. Management should continue to identify newly created risks of fraud over the financial reporting process for both internal and external components.

Our team of attest professionals have the necessary experience and skills in navigating financial statement reporting in these difficult times. Please contact us or reach out via our contact form.

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