Pub. 2 2020 Issue 6

N O V E M B E R / D E C E M B E R 2 0 2 0 28 nebraska cpas The coronavirus pandemic has left CPAs with a lot of balls in the air, creating a whole new ballgame when applying Generally Accepted Accounting Principles (GAAP). Should COVID-19 be considered a one-time event or the new normal? Some key areas CPAs may want to pay attention to are: • Estimates • Going concern • Leases • Subsequent events • Government assistance • Current expected credit losses (CECL) • Asset impairment Estimates Accounting estimates involve identifying, measuring, and disclosing future amounts or evaluating an event that has occurred where information cannot be collected in time for financial reporting. Accounting estimates are difficult enough. The pandemic has made accounting estimates more complex even for those with experience and training. When using professional judgement whi le making account ing est imates involving COVID-19, consider the following: • Have a good understanding of the entity. • Per form a meaningf ul r i sk assessment containing information that can be applied to estimates. • Document information available at the time. • Question if all estimates are reasonable. • Disclose circumstances that change estimates after the fact. • Involve experts and evaluate their work. Going Concern A going concern assessment relies on evaluating future plans for the operations of an entity. An entity is usually a going concern if management has a realistic plan to avoid liquidation. Because of the pandemic, there are many indicators of a going concern to consider, including: • A pause in operations causing less demand for services and goods • Uncer tainty about future restrict ions on operat ions and employees • Financial changes and the inability topaydownor obtain loans • Lack of resources such as materials, services, and workers • Intercompany money that is no longer available • Realization and write-downs of accounts receivable and inventory • Cancelled events where money will not be recovered • Reliance on vendor credit that will no longer be available • Short-term assets that may not be recovered • Lack of government assistance Leases Many leases have been renegotiated because of COVID-19 to ref lect a decrease in the ability to pay and realize revenue. The timing is less than perfect with the crossover happening between Financial Accounting Standards Board (FASB) Topic 842 and Topic 840 – Leases. To make accounting for rent concessions easier during the pandemic, FASB has simplified the accounting guidance. The FASB staff considers it acceptable to make an election to account for rent concessions under Topics 842 and 840 as though enforceable rights are part of the lease agreement even if they are not. Accordingly, lessees have the option to avoid evaluating if a rent concession associated with COVID-19 is a lease modification. This option prevents the costly and time- consuming work involved in determining if a rent concession is a new lease. When agreements are made tomodify rent payments, CPAs should refer to the original lease agreement, get proof of changes, and document their understanding of the modified conditions. HOW COVID-19 IS CAUSING GAPS IN GAAP BY SUSAN FIRRIOLO, CPA, TAX CORRESPONDENCE SERVICE