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Deloitte’s COVID-19 Accounting Navigator

A series of solutions to assist you to navigate through accounting and auditing challenges

In response to the COVID-19 pandemic, our experts have centralised an array of useful services to assist with financial reporting requirements.

Deloitte’s COVID-19 Accounting Navigator

Share Based Payments

The COVID - 19 outbreak has exacerbated market volatility. As such, many companies will need to reassess the probability of meeting performance vesting conditions under share-based payment arrangements and determine the appropriate accounting treatment if such arrangements are modified or settled. Our share-based payments solution can value your employee share plans in accordance with IFRS 2 and provide a dynamic, consolidated view of expected vesting performance.

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Incremental borrowing rate

In response to the COVID-19 outbreak, concessions or deferral of lease payments have been granted by lessors to lessees. The modification of these contractual lease arrangements requires remeasurement of the lease liability using a revised discount rate. At the same time, central banks in many jurisdictions are cutting interest rates. Assessing a revised discount rate may require significant judgement given these circumstances. Our IBR solution can calculate your incremental borrowing rates “IBR’s” tailored to your entity through an innovative digital application.

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Lease modifications

In responding to the impact of COVID-19 pandemic, many organisations are looking into their current lease arrangements, with some lessors providing lessees with deferral or relief of lease payments that would otherwise be payable.

The accounting consequences of changes to lease payments or lease arrangements would need to be assessed. The IASB has proposed to amend IFRS 16 to provide an optional practical expedient for lessees to note assess whether a COVID-19 related rent concession is a lease modification, subject to meeting certain conditions.

Our Lease Accounting Specialist can support you in navigating through the proposed amendments and the accounting consequences of any changes to the lease payments or other terms and conditions of the leases under IFRS 16.

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In accordance with IAS 36, an entity is required to assess at each reporting date whether there are any indicators of asset impairment. With recent developments of the COVID-19 situation, there are both external and internal sources of information - such as the fall of stock and commodity prices, decrease of market interest rates, manufacturing output reduction, reduced consumption demand, among other things, indicating an asset may be impaired.

Our impairment specialists can provide you with essential inputs and insights into navigating the challenges in assessing impairment and preparing forecasts of or budgets for future cash flows by providing the following:

  • Commodity prices and forecasts
  • Interest rate forecasts
  • Sector analysis
  • Retail and consumer spending forecasts
  • Foreign exchange rates
  • Discount rates with specific risk premium or COVID-19 premium

In addition, we can help you determine your asset impairment using expected cash-flow approach based on probability-weighted scenarios.

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Allowance for expected credit losses

COVID-19 impacts the ability of borrowers to meet their obligations under loan agreements. Financial institutions will have to update their macroeconomic scenarios and capture additional ECL risks when determining loan allowance. In particular, to consider the following

  • Reductions in forecasts of economic growth increase the probability of default (“PD”) across many borrowers; and
  • Loss given default (“LGD”) may increase due to the fall in collateral values.Applying IFRS 9 Financial Instruments, our Treasury Specialists will help you reassess your allowance for expected credit losses given the current market climate.

Financial contract modification

Affected entities may experience cash flow challenges as a result of disruptions in their operations, higher operating costs or lost revenues. Such entities may need to obtain additional financing, amend the terms of existing debt agreements or obtain waivers if they no longer satisfy debt covenants. Whether changes to existing contractual arrangements represent a substantial modification or potentially a contract extinguishment would have accounting implications under IFRS 9. Our Treasury Specialists can assist both lenders and borrowers to assess impact of loan modification on your financial reporting.

Derivatives and Hedging

The COVID-19 outbreak may cause business transactions to be postponed or cancelled. In accordance with IFRS 9 for hedge accounting, the entity is required to consider whether the volume or amounts involved of the transaction will be lower than forecasted or whether the expected transaction is no longer highly probable or expected to occur.

Our Treasury Specialists can assist you value your derivative instruments and assess appropriate hedge accounting impact of changes in your transactions.