Considering the current pandemic situation, it has become imperative to analyze the going assumption of an entity. The evaluation shall involve five areas as specified below:
|MANAGEMENT’S ASSESSMENT||DISCLOSURE REQUIREMENTS|
|Identification of principal risks and uncertainties i.e. liquidity and solvency risk||Significant judgements and estimates made by management|
|Revision of budgets||Manner of managing the liquidity risk|
|Updating forecasts i.e. inclusion of identified risk factors and its possible end result.||Any default or breach in regards to borrowings made during and at the end of period|
|Reassessing the source of income||Key source of estimation uncertainty relating to carrying amount of assets & liabilities.|
|Assessing the compliance in regards to projected deals||Objectives, policies and procedure for managing capital, including regulatory capital.|
|Reconsidering the viability of management’s future plans||Timing and amount of provisions and contingencies|
|AUDITOR’S RESPONSIBILITY||COMMUNICATION with THOSE CHARGED WITH GOVERNANCE|
|Reporting of a new Key Audit Matter (KAM) in response to additional audit work necessary||Whether events or conditions constitute material uncertainty|
|Addition of material uncertainty in regards to going concern, if suitable||Whether management’s use of going concern basis of accounting is appropriate in preparation of financial statement|
|An emphasis of matter paragraph||Adequacy of the disclosures in financial statements|
|A qualification or adverse opinion in respect of inadequate disclosures in financial statement||Implication for auditor’s report, if applicable|
Inspite of contraction in outdoor consumption model, the indoor segment i.e. digital, gaming, OTT, TV has become top gainers. The M&E sector witnessed growth at compounded rate of 11.5% over a span of 5years. Players of digital segment are providing bundled services which needs financial evaluation (explained below).
Considering the increase of downturn in economy due to COVID-19, companies may have to face plethora financial implications. An illustrative list for M&E sector is summarized below:
|Area of impact||Description|
|Film exhibition (theatres / cinema halls)|
|Revenue recognition and amortization of content||
|Digital (Broadcasting / OTT / cable)|
|Revenue recognition and provision for ECL||
|Other media (event, print, radio and out-of-home media)|
|Revenue and other related areas||Considering the postponement or cancellation of events, faster recovery is expected from B2B as compared to B2C.
Organizers need to evaluate the impact for revenue and costs, debt commitment as well as the provisions for onerous contracts.
|Others- Print, Radio and Out-of- home media||In order to avoid the spread of fake news, subscription in print media is likely to be increased as compared to out-of-home.
Medium operators should assess the impact on revenue basis renegotiations and commitments.
Expected credit loss model needs to be reevaluated considering the extended credit period
In order to alleviate the burden of debt servicing RBI has issued the below mentioned measures:
Below mentioned disclosure in “Notes to Accounts” for FY 2019-20, 2020-21 and half year ending 30th September, 2020 is required
|Amounts in SMA and overdue categories||Amounts where asset classification benefit is extended||Additional provisions for quarters 31st March 2020 and 30th June 2020||Additional provisions adjusted|
A review of borrower within 30 days of default in repayment of dues is mandatory. Resolution plan to be implemented within 180 days of review.
No dividend shall be paid by banks for year ended 31st March, 2020 until further instructions in curb the losses and support economy.
Period for realization and repatriation of export until 31st July, 2020 has been extended to 15 months from the date of export.
|Eligible activities||Ineligible activities|
|Contribution to PM Cares fund||Contribution to Chief Minister’s Relief Fund or State Relief Fund for COVID-19|
|Contribution to State Disaster Management Authority to combat COVID-19||Payment of salaries / wages to workers or employees|
|Spending CSR funds for COVID-19 related activities||Payment of wages to temporary, casual or daily wage workers|
|Payment of ex-gratia above the wages|
♦ Reduction in average market cap from INR 250 crores to INR 100 crores.
♦ Period of listing is reduced from at least 3 years to 18 months
♦ Audit qualification pertaining to disclosing the impact on user’s financials is permitted
♦ Minimum subscription requirement is now 75% of offer size, conditions applicable
♦ Rights issue upto INR 25 crores, no requirement of draft offer
Source: Auditing and Accounting update: KPMG issue, April 2020