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April 1, 2020

Accounting Considerations & Relief Extension for Public Companies in the Wake of COVID-19

Tax

The Coronavirus disease (COVID-19) pandemic has effected countless aspects of our daily lives and business, and accounting is no exception. Many companies will need assistance navigating the complexities of accounting guidance—particularly during these times of uncertainty and business and workflow disruptions. The COVID-19 pandemic will likely impact a variety of your accounting estimates and the application of current accounting guidance. It may also require your organization to perform a number of analyses and tests during an interim period that may otherwise have not been necessary. You will be required to create detailed memoranda and documentation to illustrate that the proper analysis supports the conclusions reached for your auditors and Q1 filing. We are here to help Securities and Exchange Commission (SEC) filers navigate and interpret the applicable accounting guidance during these ever-changing times, as well as aid with the preparation of technical memoranda and other documentation that you are required to prepare.

We are available to assist SEC filers with the following:

Goodwill and Long-Lived Asset Impairment Analysis

Many organizations will find they have unexpected “triggering events” that require an impairment assessment under ASC 350 and ASC 360 for assets such as goodwill, intangible assets, right-of-use (ROU) assets, contract assets, property plant and equipment, among others. Impairment analysis can often be complex, requiring a significant amount of data collection, analysis, and extensive written documentation. Your organization may benefit from outside assistance with accounting analysis, preparation of technical memoranda and financial statement disclosure, and calculation of the fair value of reporting units or asset groups by valuation experts.

Lease Accounting

A lessee may be granted or may have a contractual right to relief from rental payments as a result of the COVID-19 pandemic. This relief may take the form of lease modifications, rent abatements, deferral of the timing of rent payments, or other concessions. Such changes should be evaluated under ASC 842 to determine correct accounting recognition and reporting. We are available to advise on the proper accounting treatment, prepare technical memoranda and financial statement disclosures for these matters as well as prepare any necessary analysis to support your conclusions.

Revenue Recognition

Under the ASC 606 assessment of variable consideration, metrics should be reassessed that could impact your current accounting for returns, rebates, and other similar estimates. Customer behavior or your organization’s ability to deliver on its performance obligations under a revenue contract could impact the current timing and amount of revenue to be recognized. Collectability estimates may also be affected as your customers may have experienced a significant work stoppage or business disruptions. Depending on the extent a customer is affected, you may need to reevaluate your conclusions reached under the five steps of ASC 606 revenue recognition or Step 1 for new contracts entered into during the reporting period. We are available to assist your organization with these analyses.

Other Matters

In addition to the above technical accounting issues that organizations should be considering, we are also available to provide assistance with the following:

  • Inventory impairment “lower of cost or NRV” analyses under ASC 330
  • Accounting for gain and loss contingencies under ASC 450
  • Evaluation of modifications to contracts, such as debt modifications and extinguishments under ASC 470, relationships with variable interest entities under ASC 810, or stock compensation under ASC 718
  • Accounting for discontinued operations under ASC 205, exit or disposal costs obligations under ASC 420, or severance under ASC 712
  • Assessment of Liquidity and Going Concern under ASC 205-40
  • Interpreting and applying new accounting guidance as issued by the FASB and SEC as matters evolve
  • Deferred tax analyses under ASC 740

Extension of Conditional Exemptions from Reporting and Proxy Delivery Requirements

On March 25, 2020, the SEC issued an order that it will provide a 45-day extension to file certain disclosure reports for public companies affected by COVID-19. In order to take advantage of this relief, public companies will need to file Form 8-K or 6-K on or before the original deadline and include a summary of why your particular circumstances have led to the need for relief for each periodic report that is delayed. The Division of Corporation Finance also issued Disclosure Guidance Topic No. 9, which provides the SEC staff’s current views regarding disclosure, as well as other obligations that should be considered in the current environment. This is a valuable resource that offers guidance on how to assess and disclose the effects of COVID-19 as well as how to best report earnings and financial results. We can assist you with filing these reports before the extended deadline.

Work with Your Provider

Your accounting provider can help you understand the ramifications of the COVID-19 virus on your financial statements and reporting. For more information, please contact Melissa Henry.

Looking for more COVID-19 resources? Visit our resource center for expertise on impacts to expect and how your business can respond.

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Melissa HenryMelissa is an Audit Director in our Clearwater office. She can be reached at 727.572.1400 or at melissa.henry@cbiz.com

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