The global impact of the coronavirus (COVID-19) outbreak continues to worsen, and the global economy has not been exempted from its effects. The impacts of this viral outbreak have yet to be fully felt but are certainly unpredictable and far-reaching. This includes the daily operations and economy of a business
With more Canadian companies cancelling in-person business meetings and asking their employees to self-quarantine, maintaining a business in this epidemic is becoming difficult.
This pandemic has created uncertainty in financial markets, and the measures taken to prevent its spread are affecting the chain of supply and demand. Let’s look at those effects.
Impact of COVID-19 on Social and Economic Conditions
Due to the pandemic, global financial markets have become volatile. In an attempt to slow the spread of the virus and protect people, measures have been taken, including:
- Social distancing and restricting public movement
- Cancelling conferences and large meetings
- Working from home
- Closing offices and all the places of business
- Limiting non-essential travel
To protect the global economy, fiscal and monetary policies are also being implemented. However, with restaurants, airlines and factories being shut worldwide, there’s still an underlying possibility of the world going into recession. Despite the rapidly evolving global response, financial markets are taking a hit.
Some key impacts of the COVID-19 outbreak on global financial markets include:
- Production halting
- Disrupted supply chains
- Reduced sales, revenue and overall productivity
- Facilities and stores closing
- Delayed business expansions
- Difficulty raising financing
- The value of financial instruments to become more volatile
- Disruption of cultural and leisure activities and tourism
When you analyze the impact of recent events on your financial reporting, you need to make various accounting considerations. That said, the Canada Revenue Agency (CRA) is updating fiscal measures to help Canadians with difficulties regarding income, benefit returns and cash flow in the coming months.
Factors to Consider in Terms of Accounting
The isolation and social distancing necessary to curtail the spread of COVID-19 have impacted the regular functioning of accounts and economic flow. Moreover, this coming right at the fiscal year-end has resulted in the entire world economy facing major setbacks.
Take into account the following factors when considering your fiscal year-end:
Allowance related to expected credit loss
Borrowers, be they corporations or individuals, have been victimized by COVID-19, with their abilities to meet their loan obligations now becoming uncertain. With the help of IFRS 9 Financial Instruments, people and corporations have to measure their expected credit loss. This includes the time value of money and an unbiased and probability-weighted amount after evaluating the situation’s possible outcomes. This is applicable to trade receivables, loans, and debt securities.
Managing liquidity risk
Disrupted sales and production during this phase can directly affect business owners’ access to working capital. This means your financial year-end will witness a sudden dip in profitability which may be difficult to recover even in the upcoming financial year.
Business owners should consider early settlement of accounts receivable through virtual bookkeepers working remotely. In case company assets are sold to fund working capital during the next few months, make sure they’re also documented in the year-end financial report.
Benefits related to employment termination
Due to the financial crisis created by COVID-19, many companies are closing or cutting costs. This, in turn, has resulted in terminations. Appropriate management of benefits related to employment termination is also delayed as year-end reports, financial calculations and audits are postponed.
Modifications associated with different types of contractual arrangements within various institutes and industries
This kind of financial trouble arises when the costs of meeting certain obligations under a contract exceed profits. Situations such as revenue contracts related to penalties due to non-delivery, increased costs for fulfilling the customer’s contract as staff are replaced because of the spreading infection, etc. ,fall under this scenario.
Events that follow the fiscal year-end and the reporting period as the entire reporting and auditing procedure become uncertain
At year-end, companies and individuals must carefully evaluate their financial information before issuing financial statements. For the subsequent financial reporting period, you’ll have to consider the effect of COVID-19 on the measurement of liabilities and assets while preparing such statements.
The impact of this pandemic will differ between entities depending on specific facts and circumstances. The major problem is that many companies and institutes are yet to complete their auditing process, hence their reporting is delayed. Companies that assign these tasks to virtual bookkeepers are better able to maintain their accounting and auditing process during this calamity.
With the outbreak of COVID-19, more and more companies are working remotely. With the financial year about to close, this is a major problem for companies with in-house accountants. By relying on virtual bookkeeping services, you can smoothly overcome the above-mentioned situations in these trying times.