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Four accounting topics everyone's talking about

Contributed by Kreston
August 13, 2020

Mark Winiarski, Financial Services Director, CBIZ & MHM, Kreston International member firm, USA

It has been a challenging year for accountants and auditors. Significant changes that have been on the horizon for several years were finally incorporated into yearend financial reports. Then the pandemic swept across the globe.

Implementation of major accounting updates

In the US private companies were required for the first time to apply the new revenue recognition standard to their calendar year end Dec. 31, 2019 financial statements. Although the required effective date was subsequently delayed in the US by one additional year due to the pandemic, many companies continued to cope with the challenges of implementation in 2020 while having their audits performed. A second major standard, new lease accounting, was also required for US public companies and companies reporting under IFRS. In addition, most US public companies also had to cope with adoption of a new credit loss standard for their first quarterly reports in 2020.

Implementing these new standards has impacted the timing of recognition for revenues, certain expenses, and the amounts of assets and liabilities raising challenges in understanding the impacts on the results of business and potentially affecting compliance with debt covenants and other contracts.

Accounting processes, internal controls and other reporting functions have all needed adjusting.


The economic decline caused by the COVID-19 pandemic has raised many questions about the fair value of a variety of assets held in a broad range of industries and companies. For some businesses and industries this has been demonstrated by declines in public share prices.

This market movement, along with the impact on future cash flows, and the resulting effect on other fair value indicators will create many questions about what may constitute a triggering event for organizations to determine whether to test their assets for impairment purposes.

For those organizations with material amounts of goodwill, indefinite lived intangibles, amortizable intangibles or fixed assets, the analysis should begin with evaluating if a triggering event has occurred that will require a detailed impairment analysis.

The accounting guidance does not provide a bright line definition for what constitutes a triggering event, which is due to the significant differences in the nature of assets and the differences in what may affect their valuation. Rather, organizations should evaluate the facts and circumstances that may indicate an asset's fair value is less than its carrying value.

Going Concern

The material uncertainties created by the pandemic and recent events may cast doubt about an organization's ability to continue operating as a going concern and will need to be considered for accounting purposes prior to issuing financial statements. However, given the time and speed of changes, entities will likely struggle to understand and evaluate the potential impacts on their financial reporting. In order to prepare an analysis of the ability to continue as a going concern, an entity needs to understand its operating environment at the date the financial statements are issued. The pandemic affects industries very differently. In some cases, an organization may have continued to operate and may have even seen an increase in customer demand, which is the case with online retailers, food delivery services, and agricultural products. Surges in demand, however, have come with their own potentially financially damaging consequences, namely supply and personnel shortages. The travel bans and stay-at-home orders have led to supply chain disruptions worldwide.

Government Grants

Unlike international accounting standards, US accounting standards do not provide authoritative guidance for the accounting for government grants by for-profit entities. As a result companies have to carefully consider the appropriate accounting guidance to apply to various government programs and incentives. The most significant US program is the paycheck protection program which provides for forgivable loans, however many other government programs that provide for direct grants also exist.

For most US companies when it comes to forgivable loans they choose to either account for it as a loan and recognized forgiveness income when it is formerly granted, or analogize to IAS 20. Other alternatives exist however, including analogy to guidance specific to not-for-profit entities which result in accounting an outcome that has some similarities to IAS 20, or to guidance on contingent gains, which results in accounting similar to the guidance for a loan.


Tags: accounting



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