Impact of COVID-19 Pandemic: Asset Valuation

Impact of COVID-19 Pandemic Asset Valuation

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Clifford Badlon

Clifford Badlon

CRESCO Accountant

The spread of the COVID-19 pandemic has significantly shaken the worldwide business market, the global economy at the full-scale level, the basic organizations and even associations at the small-scale level. While things are progressing rapidly, and there are still a ton of questions, the disturbance, and vulnerability brought about by the pandemic are broad: production and flexibly chain interruptions, loss of many clients, terminations of areas, representative layoffs, leave and work limitations, the decline in the purchasing power, among others. These occasions will bring clear thinking in the financial report, which should be continuously and vigorously evaluated by companies and its management.

Importance of Asset Valuation and the Effect Brought by the Pandemic on Businesses

Asset valuation pertains to the value assigned to a specific property, that can be stocks, options, bonds, buildings, machinery, or land. The weakening economic conditions identified by COVID-19 and its impact on operations can be seen as early as the first quarter of 2020. Accordingly, companies ought to understand the financial effect of the pandemic in their financial reports. Specifically, business interruptions, misfortunes of clients, terminations, and so on may demonstrate an adjustment in conditions that could influence a substance’s future income projections and different presumptions used while evaluating if an asset may be impaired.

For period closing by December 31, 2019, Accounting Standards require, Subsequent Event required revaluation of projections and accounting of certain conditions, for example, potential asset impairments that are a result from the turn of events and spread of the pandemic, as these non-perceived events that have a negative impact on business and financial conditions didn’t significantly occur until, at the earliest of January 2020. In any case, for reporting periods ending after this date, companies ought to assess the effect that COVID-19 has on their operating and financial results utilized in valuation of their assets considering the time-line when pandemic started.

The unfavorable effect on companies brought about by measures to stop the spread of the disease, for example, transitory assembling plants or production terminations, supply chain disturbances, travel and import/trade limitations, can all possibly be viewed as markers of a disability, contingent upon the kind of asset. In addition, money related forecasts and key assumptions that are adversely affected by COVID-19, for example, major agreements and customer misfortunes), may also be signs of impairment.

Determination of the valuation and acknowledgment of assets is one of the more puzzling bookkeeping issues companies may look into because of COVID-19. Accounting standards rarely provide impairment models that depend on the type of asset being assessed, and there are special accounting requirements. 

Here are some assets that entities should check and assess for impairments.

1. Receivable

2. Intangible assets

3. Property, plant, and equipment

4. Equity method investments

5. Investments in equity and debt securities

CRESCO Accounting is a chartered firm providing accounting and audit services in various industries. They are dedicated to helping companies, whether small or big, SMEs, individual business owners as well as large subsidiaries. The company’s services are designed based on the goal of providing proficient and cost-effective accounting solutions to offshore and onshore clientele while guiding and helping them achieve their full business potential.

For more information, you can chat with our live online customer support. We can also set-up a video conference call with our accounting team.

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