IM/STUDY

UNIVERSITY OF PESHAWAR

ASSIGNMENT NO 1
ACCOUNTING

SUBMITTED TO:
SIR. ASIF HADI
LECTURER IN:
ACCOUNTING

SUBMITTED BY:
HAMMAD KHALIL
BBA (HONS)
1ST SEMESTER
CLASS NO # 49
MORNING SESSION
REAL CONSEQUENCES OF THE COVID 19 PANDEMIC=

The coronavirus (COVID-19) pandemic has rightly become the focus of massive public attention in recent
weeks. In addition to concerns about the health of their workers, businesses are increasingly concerned
about how it will affect their financial results and the performance of their supply chain partners.

Among the many consequences of the COVID-19 coronavirus pandemic is that entities will face many
financial reporting implications and challenges — and they’ll face them as soon as the next interim
financial statement preparation period

Though the full effects of the COVID-19 outbreak are yet unknown, the impact is already global. Every
business is affected in some way. As the outbreak continues to grow worldwide, U.S. companies, large
and small, are devising contingency plans and reworking their goals and budgets to address potential
risks. Likewise, investors and other stakeholders want to know how companies are responding to this
emerging risk factor.

C O V I D - 1 9 : F I NA NC I A L RE PO RT I N G I M P L I CAT I O NS  

(accurate at 20 April 2020)

We have analysed the financial reporting implications of Covid-19 in three broad categories:

1. Front-end - risks, uncertainties and viability

2. Financial Statements
3. Filing and other considerations

These are considered in greater detail below, please click the links to review each topic.

' FR O N T - E N D' RI S K S , U NC E R T AI N T I E S AN D V I A BI L I T Y
Introduction

The Strategic Report

 Business model and strategy

 Business environment
 Performance
 S172 statement
 Non-Financial Information Statement
  Factoring COVID-19-Related Risks into Financial Statements

Under GAAP, U.S. companies may be required to factor COVID-19-related risks into their
financial statements. Examples of balance sheet accounts that may be materially affected by the
outbreak include:
 1. Financial Assets
Companies should consider the potential for impairment, as well as the need to adjust cash flow
projections and other assumptions used to measure non-quoted financial instruments. Financial
assets reported at fair value on the balance sheet may result in realized and unrealized losses .
 2. Receivables
Customers adversely affected by the outbreak may be unable to pay outstanding invoices. This
situation could result in additional credit and liquidity risks, higher than usual bad debt, and
even impairments and write-offs. Cash flows from operations may also be affected .
 3. Inventory
The outbreak may disrupt supply chains and productivity. Companies with reduced or idle
production capacity may be unable to allocate overhead costs to inventory as they usually do. In
addition, inventory that can’t be turned over because of travel restrictions may have to be
evaluated for impairment. Finally, changes in prices and reduction in the level of demand will
also have to be taken into consideration.
 4. Pensions and Post-Retirement Plans
Financial market volatility has affected the measurement of these accounts. Companies may
have to revisit both the expected return on plan assets and the funded status of the plans.
 5. Deferred Tax Assets
If estimates of earnings of foreign subsidiaries change, companies may have to reconsider some
of their tax strategies, or they may not be able to realize all deferred tax assets.
 6. Goodwill and Other Indefinite-Lived Intangible Assets
Subsidiaries in areas heavily affected by COVID-19 may see their revenues or net income
affected by the outbreak. This may trigger impairment testing for goodwill and other intangibles.
The reassessment of key accounting estimates and projections may result in an immediate
impairment. Additionally, impairment testing may have to be done more than once this year if
management considers that evolving circumstances result in more than one triggering event .

F I N AN C I A L S TA TE M E N T S

 Recognition and measurement

 Post-balance sheet event reporting and disclosures
 Reporting periods in 2020
 Interim reporting in 2020
 Impairment of property, plant and equipment and intangible assets including goodwill
 Net realisable value of inventory
 Recoverability of receivables
 Recognition provisions, including onerous contracts
 Idle capacity and vacant property
  Debt modifications and breaches of loan covenants
 Insurance for business interruption
 Revenue recognition
 Share-based payments
 Defined benefit pension schemes
 Sources of estimation uncertainty

F RO N T E N D A NN U A L R E P O R T I N G
INTRODUCTION

 It is difficult to imagine that there are many active companies that have not been affected in some way
by Covid-19. All of them should be informing users of the accounts about the effects on the company’s
solvency, profitability and strategy. Even if your company is somehow unaffected, an explanation
of why will still be important to the readers of the annual report. The level and detail of disclosures
surrounding the impact of Covid-19 are, of course, dependent upon the significance of the impact that
Covid-19 has had, and is expected to have, on the business’ operations and activities and there will be
no standard format for this.

While the focus is principally on annual reports, many of the areas discussed here will also be of
relevance to other areas of corporate reporting, including half-year reports and trading statements and
the same insights may be useful for private communication with, for example, banks.

In many cases, the board’s immediate focus is likely to be on survival, or, for some, on dealing with the
immediate impact on staff, supply chains and how to deliver goods or services to customers. These
concerns will be mirrored by investors, whose focus has shifted abruptly to cash flow and solvency from
growth. It is also worth considering, however, what the board’s decisions will look like after a crisis, how
the focus on survival has impacted other stakeholders such as employees and suppliers and the
company’s reputation. Some of this should appear in this year’s corporate governance and s.172
statements, though a fuller account may be required in the following year. Bear in mind, while dealing
with the immediate effects, how the board will account for its actions and what factors are taken into
account now are important.

Like the board, investors’ current attention will be on available cash and cash flows, how long the
business can survive under lock-down and how resources will be preserved in order to be able to return
to normal operations as the crisis abates. 

EFFECTS OF COVID-19 PANDEMIC ON GLOBAL PRODUCTIVE SYSTEM.

Some of the effects of Covid-19 pandemic on the global production system are as follow,

1. Changes in production capacity

The COVID-19 pandemic may affect manufacturing entities in a number of ways, including work
stoppages during government-mandated shelter in place orders or shortages of labour and
materials in the production process. These factors may result in production levels to drop below
normal capacity levels.

Companies should consider the impact of such situations on their inventory costing. Accounting
guidance states that fixed overhead is to be allocated based on normal capacity of the
production facilities. If an entity ceases production or significantly reduces production for a
period of time, significant portions of fixed production overhead (e.g., rent, utilities and
depreciation) will need to be expensed rather than capitalized and not increase the amount of
fixed overhead costs allocated to each inventory item.

Normal capacity is the production expected to be achieved over a number of periods or seasons
under normal circumstances, taking into account the loss of capacity resulting from planned
maintenance. Some variation in production levels from period to period is expected and
establishes the range of normal capacity. Judgment is required to determine when production
is lower than normal capacity. The range of normal capacity can vary based on business and
industry-specific factors .

2.Effects On Manaufacturing Industries

The manufacturing sector is a major part of the economy as it accounts for nearly 16% of the global GDP
in 2018. As a result, the government across the countries primarily focuses on encouraging the
manufacturing sector. Certain initiatives in emerging economies to promote the manufacturing sector
include Make in India and Made in China (MIC) 2025. MIC 2025 is the first stage of a larger three-step
strategy to transform China into a leading manufacturing power. The initiative seeks to move China up
the manufacturing value chain by utilizing innovative manufacturing technologies or smart
manufacturing.

In addition, Make in India is an initiative was launched in 2015 to encourage the production of goods
in India. This aims to reduce India's dependency on exporting nations by producing goods in their own
country. Since the launch of Make in India, FDI in the country has followed an optimal trend. During the
period, April 2014 to March 2019, FDI inflow in Indiawas $286 billion, which is nearly 46.9% of the
overall FDI received in the country since April 2000 ($592 billion). This resulted in owing to the
investment-friendly policies and opening of FDI allowance in several sectors.

However, after the outbreak of coronavirus, the global FDI inflows has witnessed a sharp decline.

As per the estimation by United Nations Conference on Trade and Development (UNCTAD), the COVID-
19 outbreak could cause global FDI to shrink by 5%-15%, due to the downfall in manufacturing sector
coupled with factory shutdown. The negative effects of COVID-19 on FDI investments are expected to be
high in the energy, automotive, and airlines industries. Due to the epidemics of COVID-19 across the
globe, the manufacturers of the automobile, chemical, electronics, and aircraft are facing concerns
regarding the availability of raw material. In the electronics sector, smartphones and consumer
electronics companies have commenced a reduction in production operations and postponed the
introduction of new products coupled with the COVID-19 outbreak, which in turn has interrupted the
supply of components.

The study on the impact of COVID-19 on the global manufacturing industry is classified into automobile,
food & beverage, chemical, machinery, electrical and electronics, metal, aviation, pharmaceutical and
medical equipment, and others. The electronics industry is being significantly affected due to the COVID-
19 epidemic, as China accounts for nearly 85% of the total value of components utilized in smartphones
and nearly 75% in the case of televisions. All critical components, such as printed circuit boards, mobile
displays, LED chips, memory, open cell TV panels, and capacitors are imported from China. Most of the
Chinese factories were shut down due to the coronavirus pandemic. As a result, in January 2020,
Chinese vendors have increased component prices by nearly 2-3% owing to shortage of supplies due to
factory shutdown. Therefore, it has negatively affected the electronics manufacturing sector across the
globe.

Further, the effect of COVID-19 on manufacturing industry is analysed based on regions, including North
America, Europe, Asia-Pacific, and Rest of World. In Asia-Pacific, China is mostly affected by the
condition, due to the fall in industrial production coupled with the shutdown of factories. In Europe,
most of the automobile companies and electronics manufacturers have temporarily closed their
factories or minimize the production output, which results in loss to the global trade. For instance,
Daimler and Volkswagen declared recently that they will temporarily shut down production of vehicle
and engine at its factories in Europe due to the coronavirus outbreak. The initiative is aimed for the
safety of their workers. The closure of factories by major automobile manufacturers resulting in a loss in
automobile production, which in turn, is affecting the automobile sector in Europe.

The companies getting affected with the coronavirus outbreak include Fiat Chrysler Automobiles N.V.,
Ford Motors Co., Samsung Electronics Co., Ltd., BASF SE, and the Boeing Co. Some of these companies
are shifting their production facility to the countries with less COVID-19 epidemic. For instance, in March
2020, Samsung Electronics Co., Ltd. declared to shift some portion of its domestic production of
smartphones to Vietnam coupled the fastest growth in the spread of coronavirus in South Korea. This
aims to minimize the potential effect of coronavirus on its smartphone manufacturing operations