Impairment analysis
Due to Covid-19, it is evident that many businesses supply and demand affected and this area must be assessed thoroughly to determine the impairment. Events such as inventory obsolescence or cash generating units whose market value decline is an indicator of impairment. Provision on trade receivables due to sudden extension in tenure would be another question to deal with.
Deferred tax Assessment
With uncertainty over the estimated profit for future years due to Covid-19, deferred tax assets recognized would be questionable.
Liquidity
non-payment of dues of loan instalment, concern over submission of necessary data to lenders, audit of inventories (stocks) for working capital requirements, and payment of salaries which in turn affects the production cycle.
Statutory dues
Cash flow issues would also affect the submission of statutory dues such as Provident Fund, Employee Provident Fund, and Goods and Services Tax. This may result in issue of an adverse opinion by auditors in their audit report.
Fair market value
What was reasonable and acceptable value till December 2019 is suddenly not acceptable in March 2020.
Revenue recognition
In current scenario, to identify customer’s ability with long term credit period, pose a big challenge for recognition of revenue. This certainly creates a question for auditor to accept recognized revenue.
Presentation
Due to Covid-19 any materially affected business may justify the low profitability with an additional presentation of line items. Then the question is, shall the entities present their financial statements properly and if how, it would be very complicated presentation.
