Announcement by EXPERTsuisse dated March 13, 2020 (in German; translated by MME; including update as of March 20, 2020)
The macroeconomic effects of the coronavirus also have consequences for accounting according to the Swiss Code of Obligations (OR). In the opinion of EXPERTsuisse, the occurrence of the coronavirus as a global threat is initially an event that does not have to be accounted for in the financial statements as of December 31, 2019. However, there may be disclosure requirements in the notes or management report. In extreme cases, the spread of the coronavirus could have such a significant negative impact on business activities that the going concern principle is called into question.
The Emergency Committee of the World Health Organisation (WHO) had declared a "health emergency of international concern" on 29 January 2020 because of coronavirus. On 28 February 2020, the Federal Council classified the situation in Switzerland as a special situation under the Epidemics Act and therefore banned major events involving more than 1,000 people until 15 March 2020.
Concerns about the spread of coronavirus and the associated lung disease COVID-19 ("coronavirus disease 2019") are already having restrictive and significant consequences for the economy and companies, for example due to constraints in production and trade or travel restrictions. The capital markets have experienced significant price corrections and an increase in risk premiums. Meanwhile, the Swiss Federal Institute of Technology's Economic Research Unit (ETH Zurich) is assuming that GDP growth in 2020 will be impaired due to supply disruptions and demand shortfalls, without quantifying this. Some central banks, namely the Federal Reserve in the USA, have already cut key interest rates. In various countries, including Switzerland, economic stimulus measures are being discussed to stabilize the economy.
The macroeconomic impact of the coronavirus may also have consequences for the financial reporting of the affected companies or groups in accordance with the Swiss Code of Obligations, including any management reports.
Events after the balance sheet date - no consideration in the financial statements
It is questionable whether any accounting consequences or disclosures resulting from the now almost global spread of the coronavirus (any value adjustments, provisions, for example in connection with the impossibility of fulfilling customer orders, change in the value basis when the going concern assumption is abandoned, disclosures in the event of significant uncertainty about the ability to continue as a going concern) should already be recognised in the annual and consolidated financial statements as of 31 December 2019 or only in later financial statements.
For accounting purposes, a distinction must be made between events after the balance sheet date, the cause of which already existed on the balance sheet date, and those whose triggering event occurs only after the balance sheet date. If the cause of an event already exists at the balance sheet date, the event must be recorded in the financial statements of the previous financial year if the enterprise receives additional information after the balance sheet date. If the triggering cause does not occur until after the balance sheet date, the event is generally not recorded in the annual financial statements, but must be disclosed in the notes (HWP volume "Bookkeeping and Accounting" (2014), IV.5.16.1).
According to current knowledge, the first cases of human infections became known as early as the beginning of December 2019, but at that time they were (still) locally limited. Only the significant expansion of the coronavirus from January 2020 onwards has led to the current economic effects. For Switzerland, the situation has become even worse with the assessment and decision of the Federal Council on 28 February 2020 to classify the situation as a special situation under the Epidemics Act and to temporarily ban major events.
In the opinion of EXPERTsuisse, the appearance of the coronavirus as a global threat is therefore a non-adjusting event after the balance sheet date, which is not required to be booked in the annual financial statements as of 31 December 2019. Accordingly, any accounting consequences are only to be taken into account in annual or consolidated financial statements with a reporting date after December 31, 2019. In this respect, impairments of assets as an event after the balance sheet date are also generally not to be taken into account as of 31 December 2019. Similarly, impairment considerations must be based on the situation on the balance sheet date, i.e. the coronavirus is not an impairment factor in this respect.
Irrespective of the fact that the situation described represents an event after the balance sheet date, it is perfectly feasible - due to the extraordinary situation with presumably strong financial consequences for individual companies and within the scope of the possibilities offered by the Swiss Code of Obligations - to examine, for example, the application of additional value adjustments or the recognition of provisions as instruments to ensure the long-term prosperity of the company within the meaning of Art. 960a para. 4 CO and Art. 960e para. 3 item 4 CO.
Events after the balance sheet date - consideration in disclosures and management report
As explained in the previous section, the global appearance of coronavirus is a non-bookable event after the balance sheet date. In the notes to the financial statements, significant events after the balance sheet date must be disclosed (Art. 959c para. 2 no. 13 CO). The nature of the event and an estimate of its financial impact must be disclosed. Examples include the effects on sales and earnings due to bottlenecks in the supply chain, the loss of own employees or the impossibility of providing services and any related legal risks. If it is not possible to estimate the financial impact, this must be disclosed.
Companies that prepare a management report in accordance with Art. 961 of the Swiss Code of Obligations must report in this report on extraordinary events and their future prospects. With regard to future prospects, the law does not specify a specific period. It seems appropriate to base this on the new financial year already in progress at the time the annual report is prepared or on a business cycle that is customary in the industry.
Going concern principle
The accounting is based on the assumption that the company will continue as a going concern for the foreseeable future (going concern, Art. 958a para. 1 CO). In extreme cases, the spread of the coronavirus may have such a significant negative impact on business activities that the going concern assumption is questionable. When assessing the going concern assumption, the reporting company must take into account all available information about the future, but at least information for the next twelve months from the balance sheet date (Art. 958a para. 1 CO).
If the going concern assumption is abandoned, the financial statements must be based on sales values (Art. 958a para. 2 CO). If circumstances arise that lead to the company no longer being continued in the foreseeable future, this must be noted in the notes to the financial statements (Art. 958a para. 3 CO).
In the event of a material uncertainty that raises serious doubts about the ability of the company to continue as a going concern, the auditor will highlight this fact in his audit report.
If the uncertainty regarding the going concern status is not adequately described in the financial statements, the auditor must consider a modification of his audit opinion or statement.
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