Applying IFRS IFRS accounting considerations of the Coronavirus pandemic Updated February 2021 Contents 1. Background .............................................................................. 2 2. Going concern ........................................................................... 4 3. Financial instruments (IFRS 9) .................................................... 5 4. Financial instruments (IAS 39) .................................................. 16 5. Impairment assessment of non-financial assets .......................... 21 6. Government grants .................................................................. 24 7. Income taxes ........................................................................... 27 8. Liabilities from insurance contracts........................................... 30 9. Leases .................................................................................... 32 10. Insurance recoveries .............................................................. 40 11. Onerous contract provisions ................................................... 43 12. Fair value measurement ......................................................... 44 13. Revenue recognition .............................................................. 47 14. Inventories............................................................................ 52 15. Share-based payment ............................................................ 54 16. Events after the reporting period ............................................ 57 17. Other financial statement presentation and disclosure requirements ........................................................................ 59 18. Other accounting estimates .................................................... 63 19. Alternative performance measures and disclosures .................. 64 Appendix: Summary of important changes to this publication .......... 66 1 February 2021 IFRS accounting considerations of the coronavirus pandemic 1. Background The coronavirus outbreak was first reported near the end of 2019. In late 2019, a cluster of cases displaying the symptoms of a ‘pneumonia of unknown cause’ were identified in Wuhan, the capital of China’s Hubei province. On 31 December 2019, China alerted the World Health Organisation (WHO) of this new virus. On 30 January 2020, the International Health Regulations Emergency Committee of the WHO declared the outbreak a ‘Public Health Emergency of International Concern’. Since then, the virus has spread worldwide. On 11 March 2020, the WHO announced that the coronavirus outbreak can be characterised as a pandemic. The virus has significantly impacted the world economy. Many countries have imposed travel bans and lockdowns on millions of people and more people in more locations are subject to quarantine measures. Businesses are dealing with lost revenue and disrupted supply chains. While some countries have eased the lockdown, the relaxation has been gradual and, in some cases, they have had to re-impose stricter measures to deal with renewed outbreaks. As a result of the disruption to businesses, millions of workers have lost their jobs and many businesses, especially those that involve close in-person contact, have been adversely affected. The pandemic has also resulted in significant volatility in the financial and commodities markets worldwide. Various governments have implemented measures to provide both financial and non-financial assistance to the disrupted industry sectors and the affected business and other organisations. In February 2020, we first issued Applying IFRS accounting considerations of Coronavirus outbreak, which focuses on addressing the financial effects when preparing IFRS financial statements for the year ended 31 December 2019. The new circumstances described above have presented entities with greater challenges in preparing their IFRS financial statements. This publication provides This publication has since been updated to provide a reminder of the existing a reminder of the existing accounting requirements that should be considered when addressing the accounting requirements financial effects of the coronavirus pandemic in the preparation of IFRS that should be considered financial statements for the annual or interim reporting periods ending in 2020. Disclosure considerations for interim financial reporting are also covered when addressing the in this publication. The issues discussed are by no means exhaustive and financial effects of the their applicability depends on the facts and circumstances of each entity. coronavirus pandemic in The financial reporting issues, reminders and considerations highlighted in the preparation of IFRS this publication are the following: financial statements for the annual or interim • Going concern reporting periods ending • Financial instruments in 2020. • Impairment assessment of non-financial assets • Government grants • Income taxes • Liabilities from insurance contracts • Leases • Insurance recoveries February 2021 IFRS accounting considerations of the coronavirus pandemic 2 • Onerous contract provisions • Fair value measurement • Revenue recognition • Inventories • Share-based payment • Events after the reporting period • Other financial statement presentation and disclosure requirements • Other accounting estimates • Alternative performance measures and disclosures 3 February 2021 IFRS accounting considerations of the coronavirus pandemic 2. Going concern IAS 1 Presentation of Financial Statements requires management, when preparing financial statements, to make an assessment of an entity’s ability to continue as a going concern, and whether the going concern assumption is appropriate. Furthermore, disclosures are required when the going concern basis is not used or when management is aware, in making their assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. Disclosure of significant judgement is also required where the assessment of the existence of a material uncertainty is a significant judgement. The going concern In assessing whether the going concern assumption is appropriate, the standard assessment needs to requires that all available information about the future, which is at least, but not be performed up to limited to, twelve months from the end of the reporting period, should be taken into account. This assessment needs to be performed up to the date on which the date on which the the financial statements are issued. Refer to section 3 for further discussion on financial statements the current vulnerability entities are facing due to concentration and liquidity are issued. risks. Judgement Management is required to assess the entity’s ability to continue as a going concern. When making that assessment, where relevant, management takes into consideration the existing and anticipated effects of the pandemic on the entity’s activities in its assessment of the appropriateness of the use of the going concern basis. For example, when an entity has a history of profitable operations and relies on external financing resources, but because of the pandemic, its operations have been suspended before or after the reporting date, management would need to consider a wide range of factors relating to the current adverse situation including, expected impact on liquidity and profitability before it can satisfy itself that the going concern basis is appropriate. Management should consider all available information about the future which was obtained after the reporting date including measures taken by governments and banks to provide relief to affected entities in their assessment of going concern. Disclosure Given the unpredictability of the potential impact of the pandemic, there may be material uncertainties that cast significant doubt on the entity’s ability to operate under the going-concern basis. When the entity prepares the financial statements, it is required to disclose these material uncertainties in the financial statements in order to make clear to readers that the going-concern assumption used by management is subject to such material uncertainties. How we see it The degree of consideration required, the conclusion reached, and the required level of disclosure will depend on the facts and circumstances in each case, because not all entities will be affected in the same manner and to the same extent. Significant judgement may be required given the nature of the pandemic and the uncertainties involved. Continual updates to the assessments up to the date of issuance of the financial statements are required. February 2021 IFRS accounting considerations of the coronavirus pandemic 4 3. Financial instruments (IFRS 9) The coronavirus pandemic and the related government measures may have a direct impact on the accounting for financial instruments. IFRS 9 Financial Instruments and IFRS 7 Financial instruments: Disclosures deal with the accounting for financial instruments and the related disclosures. Entities should exercise careful consideration in their accounting for financial instruments. Additional accounting considerations for banks, are also included in this section. The normal purchase or sale exception Entities that have revised their expectations on purchases or sales of non- financial items downwards due to the current economic environment should consider how these changes affect the classification and measurement of such contracts and whether they continue