Pondering impact of coronavirus prevention steps on a charity’s financial statements. An auditor’s perspective.

Image courtesy of Adobe Stock.

If you are on the finance team of a not-for-profit organization and have a December 31 year end, you are likely working with your CPA on the annual financial statements. Or, you may have just released your financials to lenders and donors.

If so, very soon your CPA may be having an uncomfortable conversation about what we CPAs call ‘subsequent events.’ Those are things that happen after the end of the year and are so significant that the events might need to be disclosed in the financial statements.

In the last week or so, major sectors of the U.S. economy have been shut down for the immediate future.  These actions will have a radical impact on certain industries and a mere dramatic impact on other industries. There may be direct impact on many charities, (such as performing arts companies, or conference centers). There will likely be indirect ripple effects on lots more charities.

To help you ponder the possible impact on your organization, read the following comments. The discussion is focused on other industries, but consider whether the broad trend might affect your charity.

Initially posted at Attestation Update:


If you are an auditor getting ready to issue opinions on client financial statements, you might want to ponder the subsequent event implications of the U.S. shutting down large portions of the economy this week. Might want to take a closer look at going concern assumptions.

If you happened to have slept well last night, you might ponder the impact on the financial statements you released a couple weeks ago.

Subsequent events

Here are some initial thoughts for consideration as disclosable material subsequent events and perhaps contingent liabilities:

  • Refunds for half a semester of room and meals for colleges
  • Refunds for cruise lines
  • Refunds for airlines
  • Cancelled rooms and returned prepayments for hotels
  • Cancelled conference venues, cancelled food and supplies, and returned deposits for conference presenters

(Hint: that performance obligation at 12/31/19 might not ever be recognized. Could it actually be something closer to an accounts payable instead of deferred revenue?)

Going concern

Ponder the going concern issues in just a few industries:

  • Cruise lines – cruises cancelled for two months or more, refunds to passengers on those cruises, drop in cash flow from less passengers making reservations many months in advance
  • Airlines – flights cancelled from Europe for 30 days, drastic curtailment of schedules, loosened refund policies for those flights not cancelled
  • Hotels – dramatic drop in occupancy rates for next one or two or three months, refunds for cancellations for who knows how many months out
  • Conference centers and other large venues – cancellation of all refundable deposits and maybe some non-refundable deposits for events for the two or four months; that space can’t be time transported to the fall or next spring
  • Oil industry upstream, midstream, and downstream – dramatic reduction in drilling, completion, refining, and selling from demand side drop (coronavirus fears and recession) and supply side disruption (unlimited production from Russia and Saudi Arabia)
  • Professional basketball, soccer, baseball, racing, boxing teams – lost revenue from spectators for tickets, concessions & parking, lost revenue from television rights
  • Any company or non-profit that generates a large portion of its annual income from conferences
  • Performing arts companies – curtailment of productions for next one or two or three months

Ripple effects

Might also consider ripple effects on vendors and supplies to all those industries, such as

  • Food supplies to all those events
  • Concession operators in airports
  • Unions for teacher, performing arts staff, airline workers, and hotel staff whose members will not be getting a paycheck for the next one or three months
  • Charities who depend on contributions from people who are employed and previously were confident their jobs would continue

Might be other industries not yet affected, such as Hollywood movie or television show production.

Leave a Reply

Your email address will not be published. Required fields are marked *