The health crisis spread across the world from Coronavirus (COVID-19) has put the common man and business organisations in lockdown mode. In addition to low demand and earnings, corporates and businesses will face accounting closures and audits for the year ending on 31 March. An extension of the financial year 2019-20 to 30 June 2020 will even out the economic impact of COVID-19 and enable corporates to manage their finances, restart businesses and reschedule business expansion plans.
Various industries, their manufacturing facilities are shut to prevent the spread of COVID-19. A shut down of the manufacturing facilities, offices, and godowns make it challenging to do stocktaking and reporting on inventories. The audit procedures for physical verification of assets and internal controls stand delayed. Various organisations will not be able to obtain professional help for calculation of year-end provisions for gratuity, bonus, and so on.
The social distancing measures make it difficult to close the year-end accounts and carry out statutory audits. Also, it will be difficult for corporates to observe compliance with various accounting standards and make a report for their business as on 31 March 2020.
The statutory audits stand delayed until a recovery is visible from the disease COVID-19. Though SEBI has given extended time for listed entities to report their quarterly and yearly earnings until 30 June 2020, social distancing will make it difficult to recover and initiate the audit process.
Also Read: COVID-19: Highlights of FM Press Meet on 24th March 2020
There will be cash flow issues due to low demand and precautionary stay-at-home measures taken by the government. There could be difficulties in the payment of interest to banks by corporates and individuals alike.
As the citizens abide by the stay-at-home measures, the government should look into the future post coronavirus and the time needed to get things back to normal. The low profits for a full financial year will dent the tax collections in the upcoming tax filing season. An extension of the March 2020 quarter until 30 June 2020 will even out the economic impact of COVID-19 on businesses and tax revenues to the government post-closure of the financial year audits.
An extended financial year until June 2020 will provide visibility to future corporate earnings and not significantly impair the future recovery from a business perspective.
For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.
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