As we head into uncharted waters and hope for a semblance of normalcy and routine to come back to our lives, I thought it would be a good idea to revisit some accounting rules and situations you might be dealing with for the first time or in a long time. Some of these are just reminders of what you are currently doing, and others are things you might have placed on a back burner or just plain forgot about. When I think about this section, I think of that song from The Breakfast Club by Simple Minds, “Don’t You Forget About Me.”
Now that you are singing along, let’s get started.
- Extraordinary/Special items – These items are unusual in nature and infrequent, so they could be necessary in some cases where there is a direct impact on the organization.
- Fair Value – With the dramatic changes in the market, many organizations will have significant fluctuations in the market value of investments, retirement plans, Other Post-Employment Benefit Trusts and so on. Especially when the valuation period coincides with an upcoming fiscal year, there will be some impact. Those that are lucky enough to have a year-end that includes part of 2019 should have a little less impact, but it will still be significant.
- Going Concern – The financial health of your organization will need to be evaluated. It is better to do it before your auditors start asking you about it. Many of you have already done this in preparation for communications with your boards, employees, and communities. If your organization was struggling before the pandemic, it isn’t likely going to be better anytime soon. Your auditors will evaluate this in both the planning and completion stages of the audit.
- Expense/Expenditure Recognition – If part of your plan for cash flow is to delay payments or skip payments, remember there are rules in place for those payments on the full accrual method of accounting and the modified accrual basis of accounting.
- Uncollectable Accounts – Many of our citizens and customers will be facing cash flow challenges and, sadly, many businesses will not ever reopen. Also, Executive Orders have forced governmental entities to turn on water that was shut off for nonpayment, creating more concerns for local providers of water to the public.
- Violations of Debt/Payment Covenants – When these situations arise, make sure you review all your information to verify that you have everything you need before making this decision. Failing to make a payment will not impact your financial statements but will require additional disclosures and potential penalties from the lending institutions.
- Sale or Pledging Current or Future Receivables – Some may have done this for cash flow reasons, and I am thinking people are looking under every stone when they are struggling. If you are considering this, please make sure to research it in advance.
- Capital Asset Impairment – Vacant facilities, partial construction or renovation, and new closures will need to be evaluated for fair value and reviewed for impairment.
- Debt Restructuring – Interest rates are low and, if opportunities arise, this might be a time to review this and the rules related to scheduling out your payments. This is an area that could be challenging in the coming years.
- Subsequent Events – Almost every set of financial statements being issued right now will likely have some sort of subsequent event note for the pandemic. This will be more detailed as we fully understand the long-term impact this will have on our state and local governments as well as our school districts.
- Management’s Discussion and Analysis – Make sure that you are not just updating information and rolling this forward as there will likely be drastic changes in comparable information. This is your opportunity to speak on the issue through the financial statements as it relates to the current year and future budgets.
Certainly, other things can be considered, and every community has their own situations and challenges. Rest assured, we are here to help you any way we can. Please reach out to any of your Yeo & Yeo professionals – we would love to talk with you about anything, not just the items on this list. Thank you and we look forward to seeing you again soon!