Topic

Australian Securities & Investments Commission

Instructions

1. Identify some of the factors that reporting entities should consider with regards to assets, liabilities and going concern assessments as a result of COVID-19;

2. Explain how COVID-19 has created uncertainty with regards to future financial performance and the resulting disclosures that entities should make;

3. What disclosures should be made in the Operating Financial Review (OFR) as a result of COVID-19?;

4. Explain why presenting a split of profit or loss between pre-COVID-19 and post-COVID-19 periods can be problematic and potentially misleading.

Answer Preview

There are two most compelling explanations of why representing a split of profit or loss between pre-coronavirus and post-coronavirus can be misleading. The pre-coronavirus period may not be a representation of future performance. An entity can face certain factors that can massively affect a split of profit or loss, but they cannot be anticipated to exist in the future. They could only be incurred during the present moment; hence, thinking that such factors can affect the future of the entity can be misleading. Secondly, the implications of coronavirus are less likely to be uniform in the post-coronavirus era. For instance, some companies reported low business (reduced income) during the period; however, such a situation will not be pro-long as they will resume production activities on a large scale. Accordingly, the split of profit or loss between the two periods can be problematic.

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