Based on current information, there is no doubt that the coronavirus will be of significant financial importance to many companies. For most companies with calendar year accounts, however, it will only have limited effect on the submission of accounts for 2019.
It is true that if the outbreak is considered to have significant financial importance for the company, the matter must be mentioned in the annual report, but a concrete effect in terms of a sum reflected in the annual accounts for 2019 will only be relevant if the virus outbreak results in there arising doubts about the continued operations of the company.
The reason that it is both possible and required to discount the pandemic in most cases in connection with the numbers of the 2019 accounts is that the actual virus outbreak did not happen until the beginning of 2020. In accounting terms, therefore, this is a non-adjusting, subsequent event.
This is defined as an event which occurs after the end of the accounting period and which does not lead to corrections to the accounts in the form of depreciation of assets (debtors, inventory, current works, deferred tax assets, etc.) or increased liabilities, e.g., in the form of loss-incurring contracts. You can read more about the accounting significance of events after the balance sheet date in this article.
The fact that the 2019 accounts, as a general rule, are not affected by the Corona outbreak is unlikely to be met with great joy in companies with solid profits in 2019 if it is already now considered highly likely that the results for 2020 will be correspondingly negative, as there is no possibility for “carry back” for tax – that is, off-setting the losses for 2020 in the profits of previous years.
Description in the annual report
If the Corona pandemic is considered to be of significant financial importance to the company in 2020, and maybe also in subsequent years, the matter must be described in the section dedicated to events after the balance sheet date in the management’s report in the 2019 accounts for Class B companies.
Class C companies must as a minimum mention the matter in a note with a similar content, but should also mention it in the management’s report. It can also be relevant to mention the matter elsewhere in the management’s report, e.g., in the section about the expected future company development and possibly in the section about special risks.
Going concern
Events after the balance sheet date which lead to significant doubt as to whether the company can continue to operate are always considered to be adjusting subsequent events.
If, as a result of the virus outbreak, it is assessed that the company can no longer be considered to be a “going concern”, this will have a monetary impact on the 2019 accounts since assets and liabilities in such a case have to be recognised at realisation values.
In case of significant uncertainty regarding continued operations, but not such a degree of uncertainty that it is considered necessary to file accounts at realisation values, this must be mentioned in the management’s report and in the notes as is always the case when there is uncertainty regarding continued operations.