{"id":108,"date":"2020-05-16T10:33:40","date_gmt":"2020-05-16T10:33:40","guid":{"rendered":"http:\/\/www.rnm.in\/blog\/?p=108"},"modified":"2025-01-30T10:55:46","modified_gmt":"2025-01-30T10:55:46","slug":"impact-of-covid-19-on-revenue-recognition","status":"publish","type":"post","link":"https:\/\/www.rnm.in\/blog\/impact-of-covid-19-on-revenue-recognition\/","title":{"rendered":"Impact of COVID-19 on Revenue Recognition"},"content":{"rendered":"\n

COVID-19 pandemic is affecting worldwide major economic and financial markets, and virtually all industries and governments are facing challenges associated with the economic conditions resulting from efforts to address it. For example, many industries i. e. travel, hospitality, leisure, Education, and retail industries have seen sharp declines in revenues due to regulatory and organizational mandates and voluntary changes in humanbehavior. To address these economic challenges, some governments are pursuing laws or other related initiatives.<\/p>\n\n\n\n

This article discusses certain key revenue reporting\nconsiderations under Ind AS 115 – Revenue from Contracts with Customers<\/p>\n\n\n\n

As a result of business disruptions associated with the\nCOVID-19 pandemic, an entity may be prevented from entering into customer\nagreements through its normal business practices, which may make the\ndetermination of whether it has enforceable\nrights and obligations challenging<\/strong>. Since many customers are experiencing\nfinancial difficulties and liquidity issues, an entity may need to carefully\nassess the collectability of its customer arrangements and consider changes in\nestimates related to variable consideration (e.g.<\/em>, because of greater\nreturns, reduced usage of its products or services, or decreased royalties).<\/p>\n\n\n\n

Below are some points to help out to customer and entity as\nwill:-<\/p>\n\n\n\n

To help customers, entity may (1) revise its agreements to\nreduce any purchase commitments; (2) allow customers to terminate agreements\nwithout penalty; (3) provide price concessions. <\/p>\n\n\n\n

The entity itself may be experiencing financial difficulties\nand supply disruptions, it may (1) request up-front payments from its\ncustomers; (2) delay the delivery of goods or service without penalty clause;\n(3) may terminate agreements which have penalty clauses ; or (4) provide price\nconcession to customer . Therefore, as a result of the changes in circumstances\nexperienced by both an entity and its customers due to the COVID-19 pandemic,\nan entity may need to consider the above when assessing revenue from contracts\nwith customers:<\/p>\n\n\n\n

FAQs on \u2018Eligibility of CSR expenditure related to COVID- 19 activities\u2019 stands issued<\/h1>\n\n\n\n

The Ministry has been receiving\nseveral references\/ representations from various stakeholders seeking\nclarifications on eligibility of CSR expenditure related to COVID-19\nactivities. In this regard, a set of FAQs along with clarifications are\nprovided below for better understanding of the stakeholders:<\/p>\n\n\n\n

\n Contribution\n made \n <\/td>\n Whether\n Qualify for CSR\n <\/td><\/tr>
\n PM\n CARES Fund\n <\/td>\n Yes\n \n <\/td><\/tr>
\n Chief\n Minister\u2019s Relief Funds\u2019 or \u2018State Relief Fund for COVID-19\u2019\n <\/td>\n No\n <\/td><\/tr>
\n State\n Disaster Management Authority\n <\/td>\n Yes\n <\/td><\/tr>
\n spending\n of CSR funds for COVID-19 related activities\n <\/td>\n Yes\n <\/td><\/tr>
\n payment\n of salary\/wages to employees and workers, including contract labour, during\n the lockdown period\n <\/td>\n No\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

For more details refer http:\/\/www.mca.gov.in\/Ministry\/pdf\/Notification_10042020.pdf<\/a><\/p>\n\n\n\n

Physical Inventory Verification -Key Audit Considerations amid COVID-19<\/h1>\n\n\n\n

Its Management responsibility to verify the Inventory\nphysically every year end to ensure its existence, Condition and valuation. <\/p>\n\n\n\n

As per the Companies (Auditor\u2019s Report) Order, 2016 (CARO\n2016), auditors arealso required to commenton \u201cphysical verification of inventory\u201d. Hence its responsibility of Auditors\nas well to ensure Physical verification has been conducted by Management during\nthe year. <\/p>\n\n\n\n

AS per SA 501 ( AuditEvidence – Specific Considerations for\nSelected Items) specify the procedures to be adopted by the Auditors to conduct\nthe Physical Inventory and to ensure all the Inventory assertion  i.e Existence, Conditions and valuation. <\/p>\n\n\n\n

Due to announcement of Lockdown before year end dated March\n24, 2020, Management and Auditors were not able to conduct Physical\nVerification as at year end. To mitigate the inventory risk ICAI has issued\nguidance note on Physical Inventory Verification Key Audit Considerations amid\nCOVID-19, below are summary of Guidance note:-<\/p>\n\n\n\n

AUDITOR\u2019S\nCONSIDERATIONS IN VARIOUS SCENARIOS<\/strong><\/p>\n\n\n\n

    \n
  1. Management unable to\nconduct physical inventory counting as on the date of <\/strong>f<\/strong>inancial statements:-<\/strong><\/strong><\/li>\n<\/ol>\n\n\n\n

    If management is unable\nto conduct physical inventory as at Balnce sheet date, Management should inform\nto Auditor the reasons for not conducting the Physical Inventory count. <\/p>\n\n\n\n