Four Accounting Topics Everyone is Talking About

Four Accounting Topics Everyone is Talking About

It has been a challenging year for accountants and auditors. Significant changes that have been on the horizon for several years were finally incorporated into year-end financial reports. Then the pandemic swept across the globe.

Implementation of Major Accounting Updates

Private companies were required for the first time to apply the new revenue recognition standard to their calendar year end December 31, 2019 financial statements. Although the required effective date was subsequently delayed in some jurisdictions by one additional year due to the pandemic, many companies continued to cope with the challenges of implementation in 2020 while having their audits performed. A second major standard, new lease accounting, was also required for public companies and companies reporting under IFRS. In addition, most public companies also had to cope with adoption of a new credit loss standard for their first quarterly reports in 2020.

Implementing these new standards has impacted the timing of recognition for revenues, certain expenses, and the amounts of assets and liabilities raising challenges in understanding the impacts on the results of business and potentially affecting compliance with debt covenants and other contracts. Accounting processes, internal controls and other reporting functions have all needed adjusting.


The economic decline caused by the COVID-19 pandemic has raised many questions about the fair value of variety of assets held in a broad range of industries and companies. For some businesses and industries this has been demonstrated by decline in public share prices.

This market movement, along with the impact on future cash flows, and the resulting effect on other fair value indicators will create many questions about what may constitute a triggering event for organizations to determine whether to test their assets for impairment purposes.

For those organizations with material amounts of goodwill, indefinite lived intangibles, amortizable intangibles or fixed assets, the analysis should begin with evaluating if a triggering event has occurred that will require a detailed impairment analysis.

The accounting guidance does not provide a bright line definition for what constitutes a triggering event, which is due to the significant differences in the nature of assets and the differences in what may affect their valuation. Rather, organizations should evaluate the facts and circumstances that may indicate an asset’s fair value is less than its carrying value.

For those organizations with material amounts of goodwill, indefinite lived intangibles, amortizable intangibles or fixed assets, the analysis should begin with evaluating if a triggering event has occurred that will require a detailed impairment analysis

Going Concern

The material uncertainties created by the pandemic and recent events may cast doubt about an organization’s ability to continue operating as a going concern and will need to be considered for accounting purposes prior to issuing financial statements. However, given the time and speed of changes, entities will likely struggle to understand and evaluate the potential impacts on their financial reporting. In order to prepare an analysis of the ability to continue as a going concern, an entity needs to understand its operating environment at the date the financial statements are issued.

The pandemic affects industries very differently. In some cases, an organization may have continued to operate and may have even seen an increase in customer demand, which is the case with online retailers, food delivery services, and agricultural products. Surges in demand, however, have come with their own potentially financially damaging consequences, namely supply and personnel shortages. The travel bans and stay-at-home orders have led to supply chain disruptions worldwide.

Currency Issues

For the Zimbabwean economy, the issue of currency has been topical for some time now. Since the introduction of the Zimbabwe Dollar in 2019, the dollar has lost value significantly against other currencies and mainly the US$ as many transactions tend to be pegged at the US$. What brings a headache to accountants is that for part of the year the Zimbabwe dollar has been the sole currency. Of recent there has been statutory instrument 185 of 2020 which calls for dual pricing of goods and services. This means that IAS 21: The Efects of Foreign Exchange Rates; comes into play halfway during 2019.

Coupled with IAS 29, there is IAS 29: Financial reporting in Hyperinflationary Economies. The Zimbabwean economy was designated as hyperinflationary for entities reporting on or after July 2019. Due to the continued deteriorating value of the Zimbabwean dollar, prices of basic commodities and services continue to skyrocket eroding the purchasing power of the local currency, which is the reporting currency of many companies.

Complied by Modern Mutumwa CA(Z)

Managing Partner – Kreston Zimbabwe

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