Coronavirus Pandemic - Accounting and Financial Reporting Impacts under U.S. GAAP

Companies are adjusting to the challenges posed by the coronavirus pandemic including managing a remote workforce, lost sales, supplier disruptions, and temporary orders to shut down.  Many of those companies are also faced with U.S. GAAP reporting requirements and will need to address accounting and financial reporting challenges exacerbated by this crisis, including potential asset impairments, customer collection issues, liquidity constraints, and financial disclosures. 

Accounting Impacts

Recent temporary restrictions placed on essential and non-essential businesses in the United States and abroad will most certainly result in revenue shortages and earnings declines in the current quarter and future periods.  Additionally, costs for supplier replacements are further expected to erode earnings. These negative factors will likely trigger companies to perform impairment tests and potentially recognize impairment losses on its long-lived assets, goodwill, and other indefinite-lived intangible assets. 

Revenue and commodity market price decreases are strong indicators that the net realizable value of inventory is less than its carrying value.  Any such inventory losses are required to be recognized in the period when the loss occurs.  In addition to these types of inventory losses, manufacturers should closely monitor capitalized costs of inventory.  Manufacturing slowdowns and temporary shutdowns caused by this outbreak may cause abnormal production capacity levels.  Excess costs caused by these capacity abnormalities should be expensed in the period incurred and not capitalized into manufacturing overhead.

Financial assets including trade accounts receivable, equity method investments, and available-for-sale debt securities should be assessed for collectability and impairment.  Many public business entities are just now adopting the provisions of ASU 2016-13, Financial Instruments- Credit Losses in their 10-Q filings, which requires the use of historical credit loss information adjusted for current prevailing conditions as well as reasonably supportable forecasts, to determine credit losses.  Prior to the coronavirus pandemic, this new credit loss standard was expected to significantly impact financial institutions and have a minimized impact to non-financial institutions.  We expect that the coronavirus pandemic could now have a greater impact to non-financial public business entities than previously expected due to the requirement to evaluate the impact of current conditions and reasonably supportable forecasts.  While complex financial modeling is not necessarily required in the new credit loss standard, the impacts of the coronavirus pandemic should be layered into the assessment of current conditions and forecasts in order to determine credit losses on trade accounts receivables and other financial assets measured at amortized cost.  Companies that have not yet adopted the provisions of the new credit loss standard will still need to assess the collectability of its trade accounts receivable portfolio and weigh the impacts of the recent business disruptions on the ability to collect from customers.  Contract assets arising under the new revenue recognition provisions of ASC Topic 606, should also be assessed for realizability.

Most calendar year-end companies have already adopted the provisions of ASU 2016-01, Financial Instruments-Overall, which requires that equity securities, except those accounted for under the equity method of accounting and those resulting in consolidation of the investee, are measured at fair value through net income.  As such, the recent market declines will be reflected in the income statement of investors holding such equity investments.  Available-for-sale debt securities continue to be assessed on an other-than-temporary impairment basis.  For those companies that have adopted the new credit loss standard described in the previous section, the other-than-temporary impairment model for available-for-sale debt securities is eliminated and replaced.  Investors will also need to assess whether any deterioration in its equity method investments are other-than-temporary.  Similarly, equity investments that are measured under the new measurement alternative afforded under ASU 2016-01 require an assessment of impairment.

Monitoring hedge accounting relationships in response to recent volatile market activity is critical to effectively manage risk and continue to qualify for hedge accounting.  The impacts of this outbreak may cause formerly highly effective hedge accounting relationships to unexpectedly become ineffective, leading to adverse impacts to the income statement.  Regression models and dollar offset calculations used to assess hedging relationships, could indicate ineffectiveness for the first time.  Qualitative effectiveness assessment methods including the critical terms match method and the short-cut method should also be reexamined.  The economic impacts of this crisis could result in a heightened risk of counterparty nonperformance for over-the-counter derivative instruments.  This risk should be captured in a counterparty credit valuation adjustment to the derivative instrument’s fair value measurement.   Additionally, any forecasted transactions designated in cash flow hedge accounting relationships should be carefully assessed to determine whether the forecasted transaction is still probable of occurring.

The earnings shortages and cash flow constraints resulting from the coronavirus outbreak may require companies to refinance their existing debt or obtain bank covenant violation waivers.  It is important that companies determine whether a refinancing is a debt modification, debt extinguishment, or a troubled debt restructuring.  Covenant violations may also trigger current liability classification on historically long-term debt classifications.

Financial Disclosures

Companies need to carefully consider subsequent event, loss contingency, and risks and uncertainties disclosures that could impact the users of the financial statements.  Examples of disclosures of risks and uncertainties include those surrounding customer, vendor, and geographic concentrations.  There is a heightened risk of loss surrounding any type of concentration thus necessitating the disclosure.  Liquidity constraints and unfavorable revenue and earnings projections stemming from the outbreak may require companies to revisit going concern assessments.

SEC Filer Impacts

In addition to the disclosure matters listed above, SEC filers need to carefully consider the impact of the coronavirus situation to the discussions of operations in the management discussion and analysis section, market risks section, and the risk factors section of a filing.  SEC filers are granted an additional 45 days to submit reports that are due between March 1 and April 30, 2020, if the filer is unable to meet the regular deadline due to circumstances caused by the coronavirus pandemic. 


As companies reallocate resources to address safety, operational, and logistical challenges created by the coronavirus pandemic, accounting resources should not be sacrificed or minimized.  Accurate, complete, and timely financial reporting will be a critical element for businesses to overcome the economic hardships of this crisis.

Please visit our Coronavirus resource page at for related content.

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