Accounting Alert

This Accounting Alert is issued to circulate insights on the Accounting Implications of the Conflict in Ukraine.

Executive Summary

In light of the recent conflict in Ukraine, including the introduction of wide-ranging sanctions against certain Russian companies and individuals, entities need to carefully consider the accounting implications of this situation. This considers the financial reporting impact of the conflict on December 31, 2021 and subsequent reporting periods as well as assessing the importance of assessing going concern

Is the impact of the conflict in Ukraine an adjusting event in the December 31, 2021 year-end financial statements?

Entities should consider PAS 10, Events After the Reporting Period, to determine if the impact of the conflict is an adjusting event or a non-adjusting event.  The current conflict started on February 24, 2022, and while the Russian troops were likely planning their attack and building up at the frontier with the Ukraine in the year ended December 31, 2021, this should not be considered a critical event for determining the conflict was obvious at that point. Given this, no further adjustments to December 31, 2021 financial statements need to be taken into consideration and the current conflict should be considered a non-adjusting event.

Considerations for the subsequent periods

Many entities may be affected during the first quarter of 2022 and beyond. Entities need to ensure the measurement of their assets and liabilities is not impacted by subsequent developments of this conflict.

Disclosure

If the impact of the non-adjusting event is material to the financial statements, it should be disclosed.  This disclosure should include the nature of the event and an estimate of the financial effect, or if it is not possible to estimate this, a statement to that effect.

Going Concern Disclosure

PAS 1 explicitly states at each reporting date, management is required to assess the entity’s ability to continue as a going concern and consider all available information about the future, which is at least, but is not limited to, twelve months from the annual reporting date.  As a result, all events that occur during an entity’s subsequent events period should be considered when evaluating whether there is significant doubt about the entity’s ability to continue as a going concern.  In other words, even if events during the subsequent events period are not considered adjusting subsequent events, they should still be incorporated into the going concern assessment.

See attached Accounting Alert for further details.