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Closing 2020 with COVID-19 — ConnectCPA

COVID-19 changed the world in ways we could have never imagined.  It did not only affect lives, but also industries and businesses.  The world was brought to a standstill by widespread lockdowns that suspended business activities. Ten months since the World Health Organization (WHO) declared this virus a pandemic, many businesses have closed, some continue to struggle month-on-month, while the rest have slowly adapted themselves to what we’ve come to know as the ‘new normal’.   

This pandemic indeed changed the way we do business.  To say that things will be different from hereon would be an understatement.  With health protocols putting limits on traditional business channels, many companies were compelled to go digital in order to bring their businesses closer to customers.  Ready or not, they were forced to shift to new business models just to stay in business.  Meanwhile, governments across the world took on the double-edged task of preventing the spread of the virus while avoiding the damaging effects of an economic shutdown.   

As the year draws to a close with the promise of a vaccine that could hopefully end this crisis, the challenges for businesses continue.  Come year-end, most businesses will get to fully evaluate how they really fared in this crisis, and more realistically assess what the experience bodes for the future.  It is therefore expected that COVID-19 issues, the impact on 2020 performance and implications on future business will add to the year-end agenda for discussion.  Below are some items to consider now that 2020 is behind us:


The effects and uncertainties brought about by the pandemic may impact revenue recognition in three aspects: 

  1. Estimates of amounts customers are expected to pay

  2. Patterns of revenue recognition; and 

  3. Collectibility of receivables   

Put simply, this is all about finding answers to how much, when and how likely will customers be able to pay after considering how the crisis has affected their businesses and consequently, their capability to meet financial commitments.   Revenue recognition may require adjustments if payment is not probable.  

Certain businesses are expected to be more vulnerable to revenue adjustments, e.g., those selling non-perishable items with flexible return policies, those engaged in providing services that were cancelled, or long-term service contracts where revenue is recognized over a long period of time which may have to be extended due to delays in service delivery.  If you are one such company, it is prudent to review agreements for return and refund provisions, assess the likelihood of these happening, and estimate the impact in terms of revenues and refund liabilities.   


Impairment is the decline in value of assets and investments. With financial projections affected by steep declines in demand and disruptions in the supply chain, impairment would also be one of the critical areas to look into. Potential credit losses due to COVID-19 warrants a revisit to cash flow projections in the impairment testing of inventory, intangibles, financial and non-financial assets, and investments.  

Although certain industries may have been more severely affected in this crisis, even essential and stable businesses have had their own share of losses and hence, face probable impairment issues due to COVID-19. Business may have resumed operations and perhaps even regained some degree of normalcy, but there are new challenges that surface as the COVID-19 situation continues to evolve.  For instance, companies may have to bear the added costs of complying with health and safety requirements, or deal with supply chain disruptions or resource management issues which COVID-19 left in its tracks.   The cash flow implications of these areas must be carefully considered in evaluating impairment.  

Impairment may also require fair value measurements, and clearly, in today’s relatively unstable market, valuation would be a challenge as uncertainties from COVID-19 still linger in the air.  It might be better to obtain expert help to ensure that proper valuations are consistently applied.


The pandemic declaration caught many businesses off-guard and not everyone was prepared with sufficient cash reserves to wait this crisis out without worry.  As the business slowdown has persisted for almost a year, companies need to assess if cash flow declines were substantial enough to breach debt covenants, or necessitate debt modifications to avoid defaults which would not only be costly but would adversely affect credit.  To address cash flow issues, businesses should consider applying for debt restructuring with creditors in the form of additional financing, change in repayment terms, or waivers of debt covenants that can no longer be fulfilled.  It is important to carefully evaluate how changes in loan terms and conditions affect the classification and measurement of a company’s financial liabilities.  


Most governments have provided relief to support businesses during these hard times through subsidies and financial grants. The Government of Canada for instance has implemented a series of programs in its COVID-19 Economic Response Plan (CERP) to cushion the blow on affected businesses, using some of the subsidies below:

  • Canada Emergency Wage Subsidy (CEWS) and Temporary Wage Subsidy for Employers (TWSE) which impacts on current year’s expenses 

  • Canada Emergency Business Account (CEBA) which provides interest-free loans that may have a 25% ‘forgivable’ portion if repaid on or before 31 December 2022

  • The Canada Emergency Commercial Rent Assistance (CECRA) helps commercial property owners and their tenants by reducing a tenant’s rent by 75% - the 25% to be forgiven by the owner and the remaining 50% to be given under the program as a forgivable loan to landlords

  • A more recent program introduced in November 2020, the Canada Emergency Rent Subsidy (CERS) provides a direct and accessible rent and mortgage subsidy of up to 65% of eligible expenses, and lockdown support for an additional 25% subsidy which can be availed until June 2021

Relief to affected organizations may also come in the form of payment moratoriums which some provinces in Canada have implemented. 

Businesses should try to obtain all of the support they are eligible for.  It is always worthwhile to explore eligibility and the application process for these programs since they can provide a lifeline to struggling businesses.  Once a business qualifies, proper accounting and bookkeeping of subsidies should be carefully studied to ensure appropriate treatment in 2020 and ensuing years, as applicable.   


A crisis of this magnitude is expected to have not just significant, but also lasting effects on business growth and sustainability.  For the hardest hit industries, the implications could potentially raise going concern issues - i.e. an analysis of whether a company can survive in the short-term. 

In a going concern assessment, companies must consider their ability to generate stable revenue streams, pay-off obligations, and avail of financing when needed, for at least the next 12 months.  External factors crucial to the business should also be considered, for instance, foreign exchange movements, demand for products or services, customers’ ability to pay, suppliers’ ability to provide the materials they need, the expected level of competition, and finally, the overall economic outlook for the industry in which they operate. This assessment may lead to crucial decisions that can spell a huge difference not just in future business pursuits but in the company’s very existence.  

Going concern is never a welcome topic for discussion - it isn’t easy to accept that a business may have potential going concern issues.  Even if conditions aren’t present to raise going concern issues, it is prudent to make a similar assessment, much like a stress test analysis of business performance, resilience and potential for growth, considering the very challenging and rapidly-evolving environment. 


The coming year-end may signal the close of one very tough year indeed, but at the same time, it also paves the way for a new beginning.  It is the perfect time for us to reflect on what has happened, but more importantly, it should compel us to look at what can be done in the future.  The past is meant to guide future decision-making and a thorough evaluation of the issues presented by the pandemic may provide insights into how a business can better position itself in the midst of uncertainties.   Because no matter the challenges, life, actually, does go on.  And at the end of the day, with or without the COVID-19, the world finds a way to move forward.