Accounting for COVID-19

As a means to instil stakeholder confidence, some companies have implemented ‘alternative’ accounting methods to adjust their financial results for the impact of COVID-19.
 
Adjustments seen so far include excluding ‘coronavirus-related expenses’. For example, payments of financial assistance to staff impacted by COVID-19 and the costs of personal protective equipment, thereby supporting a higher net earnings amount.
 
When one company posted its first-quarter results it excluded the effect of Covid-19 (incremental bad debt expenses, production shutdown costs, and payments to front-line workers) from its adjusted earnings per share on the basis that the costs were expected to be ‘short term’.
 
Some might call this wishful thinking as such adjustments imply the pandemic is a short-lived one-off event. However, globally, the crisis is very much still ongoing, with the potential to impact future revenue and expenses more significantly than it already has.
 
At the other end of the scale, investors should also be aware of companies over-reporting expenses in the pandemic-affected periods (whether Covid-19 related or not) to create a false sense of rapid recovery once the crisis is over.
 
Whether the adjustments are to improve the quality of information available to investors or because executive remuneration is linked to margin-based key performance indicators, you be the judge…