The accounting treatment of expected credit losses by South African banks during COVID-19

Orientation: The coronavirus disease 2019 (COVID-19) pandemic negatively affected borrowers' ability to repay debt, which is expected to influence banks' calculation of their expected credit loss (ECL) allowance. Comprehensive disclosure regarding the application of managerial judgement in calculating ECLs would produce decision-useful financial information. Research purpose: This study explored the effects of the COVID-19 pandemic on the measurement and disclosure of ECL allowances by South African listed banks. Motivation for the study: It is unknown whether decision-useful financial information regarding South African banks' ECLs was produced during the pandemic, mirroring developed countries. Research approach/design and method: Content analysis of quantitative and qualitative data from annual financial statements was employed for a sample of listed banks. Main findings: Banks employed a variety of relief measures to accommodate borrowers, but these relief measures did not automatically trigger a significant increase in credit risk. More loans were subject to lifetime ECLs, causing the ECL allowance to increase substantially during the first year of the pandemic. Forward-looking information as well as postmodel adjustments were employed to measure the ECL allowance. Practical/managerial implications: The ECL allowances of South African listed banks increased during the pandemic. Disclosure in the annual financial statements and identifying ECLs as a key audit matter provided evidence of adequate consideration of the credit risk and forward-looking information influencing ECLs by banks and their auditors. Improved disclosure regarding postmodel adjustments is required. Contribution/value-add: During the COVID-19 pandemic, decision-useful financial information regarding the calculation of banks' ECL allowances was available for South African banks, mirroring developed countries.

Detecting 'Big Bath' Accounting in the Wake of the COVID-19 Pandemic: Certified Public Accountant

The head of global financial reporting policy at the CFA Institute, Sandy Peters, warns that financial statement users should exercise significant skepticism of management's methods, techniques, and potential creativity in reporting results, following COVID-19 (Bary, 2020). During extraordinary times, the role of professional judgment and discretion becomes more pronounced, as management is forced to make projections with limited precedent. [...]some experts predict that management may be overly generous in their bad debt reserves (V. Burca, D. Mates, O. Bogdan, "Exemplifying the Effect of Big Bath Accounting in the Pandemic," Ceccar Business Review, The Body of Expert and Licensed Accountants of Romania, https://doi.org/10.37945/cbr.2021.02.01, February 1, 2021). Many employees have embraced remote work and have no intention of ever permanently returning to the office. [...]companies looking to lower overhead and administrative costs may be looking for smaller office buildings or locations where space sharing can be optimized. Many holders of lease agreements and long-term contracts will be looking to negotiate new terms, if they have not already. Because the market impact remains unclear, estimating losses with any degree of accuracy could

Revelación de información financiera en tiempos de incertidumbre: un estudio exploratorio de los efectos del COVID-19 en empresas colombianas

El articulo evalúa la extensión y la oportunidad de las revelaciones de los impactos del COVID-19 en la situación y en el desempeño financiero de empresas colombianas. Se diseñó un indice de revelación de información, a partir de las directrices del Consejo Técnico de la Contaduria Pública. Se realizó un ejercicio exploratorio y de análisis de contenido de las notas de los estados financieros de los años 2019 y 2020 de doce empresas cotizadas en la Bolsa de Valores de Colombia, las cuales son representativas de los sectores primario, secundario y terciario de la economía. Los resultados evidencian limitaciones en la extensión y en la oportunidad de la información revelada, aunque se reconoce el incremento de lo divulgado en la medida que avanzó el tiempo. Se concluye que las empresas estudiadas solo revelan el efecto de la situación de incertidumbre, cuando el riesgo tiene factibilidad de materializarse y no cuando este es potencial, lo cual resta relevancia a la información incorporada en los estados financieros y afecta la toma de decisiones de los grupos de interés.Alternate abstract:This paper assesses the extension and timeliness of disclosures of COVID-19 impacts on the financial condition and performance of Colombian companies. A disclosure index was designed based on the Technical Council of Public Accounting guidelines. An exploratory exercise and content analysis were conducted on the notes to the financial statements for the years 2019 and 2020 of twelve companies listed on the Colombian Stock Exchange, which are representative of the primary, secondary, and tertiary sectors of the economy. Although it was identified that the information disclosed has increased with time, the findings show limitations in the extension and timeliness of the information disclosed. It is concluded that the companies studied only disclose the effect of the uncertainty situation when the risk is likely to materialize and not when it is potential, thus reducing the relevance of the information included in the financial statements and affecting the stakeholder decision-making process.Alternate abstract:O artigo avalia a extensão e a oportunidade das divulgaçoes dos impactos da COVID-19 na situaçao e na performance financeira das empresas colombianas. Foi elaborado um índice de divulgaçao de informaçao, com base nas diretrizes do Conselho Técnico de Contabilidade Pública. Foi realizado um exercício exploratório e de análise de conteúdo das anotaçoes das demonstraçoes financeiras dos anos 2019 e 2020 de doze empresas listadas na Bolsa de Valores da Colômbia, que sao representativas dos setores primário, secundário e terciário da economia. Os resultados evidenciam limitaçoes na extensao e oportunidade da informaçao divulgada, embora se reconheça o aumento do que foi divulgado a medida que o tempo avançou. Conclui-se que as empresas estudadas apenas revelam o efeito da situaçao de incerteza, quando é provável que o risco se materialize e nao quando é potencial, o que reduz a relevância da informaçao incluida nas demonstraçoes financeiras e influencia a toma de decisoes das partes interessadas.Alternate abstract:Cet article évalue l'étendue et l'opportunité de la divulgation des impacts de COVID-19 sur la situation financiere et les performances des entreprises colombiennes. Dans cette étude, un indice de divulgation a été conçu sur la base des directives du Consejo Técnico de la Contaduría Pública (Conseil technique de la comptabilité publique). Nous avons aussi réalisé un exercice exploratoire et une analyse de contenu des notes aux états financiers de 2019 et 2020 de douze entreprises cotées a la Bourse colombienne, représentatives des secteurs primaire, secondaire et tertiaire de l'économie. Les résultats montrent des limites dans l'étendue et l'opportunité des informations divulguées, meme s'il est reconnu qu'il y a eu une augmentation des divulgations au fil du temps. Il est conclu que les entreprises étudiées ne divulguent l'effet de la situation d'incert tude que lorsque le risque est susceptible de se matérialiser et non lorsqu'il est potentiel, ce qui réduit la pertinence des informations incluses dans les états financiers et affecte la prise de décision des parties prenantes.

Impairment of Non-financial Non-current Assets Under IFRS in the COVID-19 Pandemic

The paper studies practical aspects of the application of IAS 36 “Impairment of Assets” in respect of non-financial non-current assets of companies and the reflection of their impairment in the financial statements following international standards. The paper aims to analyze the existing approaches to reflecting non-financial non-current assets impairment in the accounting financial statements under IFRS and Russian Accounting Standards (RASs). The aftermath of COVID-19 caused a significant increase in economic uncertainty for companies. The authors examine the specifics of impairment of non-financial non-current assets and the presentation of the result of impairment in the financial statements under IFRS under RAS. The application of the provisions of IAS 36 if necessary, the impairment of non-financial non-current assets and reflection of its results in the financial statements will allow Russian companies to form the most correct information, which will be valuable for users to assess its financial position, considering the effect of asset impairment. In this case, the reporting organization must also disclose this information in its accounting policy. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.

Implementing CECL During the Pandemic: Unexpected Consequences Revealed: Certified Public Accountant

The much-anticipated and -deliberated changes to the accounting for financial instruments ushered in by ASU-2016-13, Financial Instruments-Credit Losses, happened to take effect during an unprecedented economic crisis brought about by the COVID-19 pandemic. This coincidence provides insight into management's decision making in a crisis and a test of whether the guidance meets the needs and expectations of users. The authors' analysis of selected CECL disclosures from last year concludes that management's judgment often influences and even overrides the results generated by CECL modeling;although conservatism may have been warranted under extraordinary circumstances, users might justifiably wonder whether such judgment is consistent with the goals of the standard.