Accounting Considerations During Uncertain Economic Times

We at CFGI hope everyone is staying healthy and safe.  

As we approach the end of the quarter for most public companies, we need to consider the unprecedented economic impact on all financial markets that is a result of the COVID-19 pandemic. The effects are widespread across organizations both operationally and financially as we adapt to the fast-changing market conditions.

Among other concerns, companies in every industry will need to consider how their accounting in many financial statement areas is impacted as part of their Q1 close. To that end, we have compiled a checklist of the major considerations companies and their finance teams should consider. This is not an exhaustive list but will illustrate the magnitude of the accounting issues companies should consider when closing the quarter:

Long-lived assets and goodwill

  • Assessment of triggering events under ASC 350 and ASC 360.
  • Ordering of the assessment.
  • When considering the impairment triggers, companies may need to re-forecast their estimated cash flows to include the economic impacts on their business. We are in uncertain times and it will be very difficult for companies to quantify the cash flow impact at this time.

Impairment of financial assets 

Under ASC 326, Financial Instruments – Credit Losses, companies with loans, trade accounts receivables and contract assets need to evaluate the extent that the coronavirus has on the collectibility of their receivables and assets. As part of this evaluation, companies will need to evaluate their reasonable and supportable forecasts of future economic conditions in their estimate of expected credit losses. For many companies, this includes updating the expectations of unemployment trends, geographic impacts of the virus, supply chain disruptions and other economic indicators. The level of uncertainty around future repayment will likely impact all companies, even those with shorter-term receivables.  

Companies with available for sale investment securities will need to evaluate whether there is a credit loss for securities that are impaired (fair value is less than amortized cost basis). Significant unrealized loss positions will need to be analyzed for portions related to credit-related factors vs non-credit related factors.

Other facts to consider in the analysis will be whether companies have the ability to hold the security until it recovers or will be required to sell for liquidity purposes.

Fair value measurements

ASC 820 requires that fair value be determined based upon an orderly transaction and contains a rebuttable presumption that a transaction between two unrelated parties is orderly. Companies using prices of securities traded on active exchanges need to consider utilizing the current market prices.

Derivatives and hedging

When companies designate a derivative instrument for hedge accounting one of the assertions that has to be made is that the forecasted transaction is probable to occur. For certain hedging transactions, such as hedges of foreign currency purchases, companies will need to evaluate the probability of the transaction occurring. In instances where the transaction is determined improbable, the derivative instrument would lose its hedge accounting designations.

Debt accounting

Companies should carefully evaluate the accounting impact of covenant violations. Restructuring of debt in uncertain economic times requires additional analysis on the accounting as troubled debt restructurings become more prevalent.


Inventory is required to be recorded at the lower of cost or net realizable value. ASC 323 defines net realizable value as the selling price during the ordinary course of business. This selling price assessment may require significant judgments in light of changing prices resulting from the disruption.


Companies will need to consider if the right-of-use assets recorded on the balance sheet are impaired. Again, forecasts and assumptions in these uncertain times will require significant judgment.

Initial lease accounting will also be impacted as interest rates have significantly decreased meaning companies will be required to reassess their incremental borrowing rate for new leases entered into in March.

Revenue recognition

Operational ability to physically ship product or provide services prior to quarterly cut off, and evidencing that performance, will be obstacles to meeting revenue targets. Market disruptions will require companies to reassess whether or not they or their customer will be able to hit performance targets that might impact the recognition of revenue.

ASC 606 also requires that companies must assess the customers’ ability to pay upon the inception of the contract. Companies also may be required to reassess this assertion for contracts that are already in process. If the company concludes that collection is not probable then there may be impacts to revenue recognition or accounts receivable reserves for bad debts.


ASC 740 requires that valuation allowances use all available information when assessing the allowance. If facts and circumstances indicate a negative outlook, companies should assess the need for adjusting their valuation allowances.  

Subsequent events

ASC 855 provides for two types of subsequent events: 

  1. Events or transactions that provide additional information on events that existed at the balance sheet date (recognized subsequent events). 
  2. Events or transactions that provide evidence of conditions that did not exist at the balance sheet date (non-recognized subsequent events).

Companies should carefully consider the subsequent event to determine whether or not the event is recognizable and the appropriate disclosure of any subsequent events.

Internal Control Over Financial Reporting (ICFR) and Information Technology

Many companies have rapidly transitioned their workforces to remote work. Companies will need to assess the impact on their ICFR programs to ensure that controls still function as designed, operating effectively, and documented sufficiently.

Risk Assessments are fluid activities and should be revisited throughout the year, especially as circumstances change. If changes have occurred to the control environment, the workforce, the activities and processes, or even to vendors and service providers, the impact of those changes should be reflected in an updated risk assessment and appropriate subsequent action is to be considered.

The rapid transition to a remote workforce has also strained the Internal Controls Over Information Technology and introduced a range of potentially new cybersecurity threats and vulnerabilities. Companies should carefully assess any impact and potential control deficiencies in this area.

IT teams should consider the full scope of equipment (including “shadow IT” and in-home infrastructure at employees’ homes) in use under these circumstances and consider the effect it has on internal controls.

What to do next

CFGI stands ready to support your finance team as they deal with the impacts of the pandemic. If you would like more information about how we can help or about the topics above, please let us know.

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