Understanding the Accounting Risks During COVID-19 in Hong Kong: Facts and Challenges
Understanding the key accounting risks during COVID-19 can be a make-or-break for thousands of businesses. In this blog, we will learn about the major areas that accountants and companies must consider to successfully deal with these turbulent times.
The coronavirus pandemic has become one of the greatest threats to the world economy in 2020. Millions of people have lost their jobs, and millions of businesses have gone bankrupt. Similarly, it has exposed some of the major flaws in how modern businesses operate. One of the areas that have been greatly challenged is accounting.
Most of the companies of the world have had to tread through accounting risks during COVID-19 in 2020. The impact of the pandemic on the entire world economy has brought uncertainty in predicting future earnings, revenues, and expenses, as well as depreciation.
Some of the major accounting risks during COVID-19 can be summarized as follows.
One of the major accounting risks during COVID-19 is the ability of companies to carry our risk assessment. Due to strict lockdowns, businesses have been hit, and the earnings have gone down. There is still a great deal of uncertainty over tax plans which could provide some relief to recovering businesses. As we move through these highly uncertain times, predicting the future of the company is extremely difficult. You should likely change your audit plans and policies which may require extreme effort and time. Maintaining constant, clear communication with your auditors might be very important during this period.
Disclosures are likely to be one of the key accounting risks during COVID-19. Companies might have to consider the impacts of the pandemic on their management report. Thus, they must study the negative effects of the pandemic on their different operations and predictions. If there is a significant deviation from their projections, they must report this clearly.
Gathering Sufficient Audit Evidence
The gathering of sufficient evidence for auditing purposes is also going to be one of the key accounting risks during COVID-19. For owners with businesses in Hong Kong, they might have to communicate with local employees to generate a trustworthy report. Since there are strict measures against normal travel, auditors have to find new ways of gathering information. It is also worth noting that governments have taken major steps to help companies prepare high-quality reports. Some of these steps include extending deadlines and easy access to the necessary resources.
Determining Adjusting and Non-Adjusting Events
This is one of the major accounting risks during COVID-19. The adjusting or the non-adjusting nature of the COVID-19 pandemic depends on the reporting period of the company. If the reporting period ended before December 31, 2019, the general agreement is that the outbreak is a non-adjusting event. This is because the outbreak became mainstream in mid-January of 2020, which is after the reporting period. However, for companies with later reporting dates, like February or March 2020, they must consider it as a current-period event.
Taxation and Government Support
Understanding the impact of new taxation and government support plans will also be one of the key accounting risks during COVID-19. To help hard-hit businesses, governments might come up with new tax plans or assistance through grants and loans. Similarly, they might impose certain conditions that the company must fulfil in order to be eligible to receive such reliefs. The accountants must be wary that these support plans work best in the public interest.
In the wake of the pandemic, companies might have to review their revenue recognition strategies. There might be a review of contract terms, obligations and payment periods, and volume discounts. Similarly, they might have to adjust their revenues and expenses.
From this blog, we have understood the key accounting risks during COVID-19. Furthermore, we have also learned how companies and accountants can adapt and prepare for the new and recovering world economy.
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