On April 3, 2020, the U.S. Securities and Exchange Commission’s Office of the Chief Accountant (OCA) issued a statement on the importance of high-quality financial reporting in light of the significant impacts of COVID-19, including considerations for accounting and auditing.
OCA’s statement acknowledges that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates, which can be challenging in an environment of uncertainty. Accordingly, OCA notes that it has consistently not objected to well-reasoned judgments that entities have made, and that it will continue to apply that perspective.
Accounting areas that may involve significant judgments and estimates as the COVID-19 environment evolves include, but are not limited to:
- Fair value and impairment considerations.
- Debt modifications or restructurings.
- Revenue recognition.
- Income taxes.
- Going concern.
- Subsequent events.
- Adoption of new accounting standards (e.g., the new credit losses standard).
In addition, portions of the CARES Act allow certain entities to temporarily defer or suspend the application of two provisions of U.S. Generally Accepted Accounting Principles (GAAP).
- Under Section 4013 of the CARES Act, federal banking agencies must suspend the requirements under GAAP applicable to banking institutions with respect to any loan modification related to COVID-19, if such loan modification would otherwise be categorized as a “troubled debt restructuring.”
- Under Section 4014 of the CARES Act, no depository institution, bank holding company or any affiliate thereof must comply with the FAS 2016-13 (Measurement of Credit Losses on Financial Instruments), including the current expected credit losses methodology for estimating allowances for credit losses.
For entities that are eligible for, and elect to apply either of the above sections of the CARES Act, OCA staff will not object to the conclusion that this is in accordance with GAAP for the period for which such elections are available.
OCA notes that the Public Company Accounting Oversight Board (PCAOB) has made a variety of decisions taking into account health and safety as well as practical considerations during this time. For example, PCAOB has provided PCAOB-registered audit firms up to a 45-day relief period from inspections (with the exception of providing access to audit documentation for certain engagements) and has temporarily suspended international travel. The OCA supports the PCAOB’s approach on such decisions and broadly supports the PCAOB’s efforts to provide timely updates on the status of its operations and reminders to PCAOB-registered audit firms related to the impact of COVID-19 on audits.
International Coordination and Stakeholder Engagement
OCA continues to actively engage with the International Accounting Standards Board and other securities regulators internationally on COVID-19 issues, and is engaging with and/or seeking feedback from stakeholders both domestically and internationally. OCA encourages all participants in the reporting system to continue to work together to provide investors with high-quality financial information needed to make decisions amid uncertainty.