please reply of at least 140 words by 11:59 p.m. (ET) on Sunday of the assigned Module: Week. For each thread, in addition to the course textbooks, students must support their assertions with at least 2 scholarly citations in APA format. Each reply, in addition to the course textbooks, must incorporate at least 1 scholarly citation in APA format. Any sources cited must have been published within the last five years.

Ethics and the Coronavirus

The Conceptual Framework provides the FASB with guiding concepts for setting standards and assisting to resolve as yet undefined accounting and reporting questions (CPA Adviser, 2021) The Coronavirus was an unforeseen onslaught from many directions affecting many segments of the global economy simultaneously. The residual effect of so many issues with labor, supply chain, production, pent-up demand and inflation complicate the work of managers in accounting and reporting transparently as well as auditors exhibiting professional skepticism, due diligence and care in evaluating these records and reports.

FASB Concepts Statement No. 8, as Amended.

What are the conceptual issues underlying financial reporting in determining how the coronavirus event should be reported and disclosed in the financial statements? How does it relate to the measurement of potential costs to the business including contingencies?

The conceptual framework seeks to attain the “objective of financial reporting—to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity” (SFAC No. 8, Ch1, 2021, OB1).  The conceptual information is not specific GAAP, but underlying concepts.  It provides guidance when events occur that are not covered specifically by GAAP, like the pandemic effects, to allow interpretation for the approach to take (SFAC No.8, 2021, Ch 1).  “Accountants are the primary producers of financial information and are expected to provide stakeholders with reliable information, especially in crises” (Mardawi et al., 2021, p.1). The shutdowns exacerbated the problems of pent-up demand when businesses resumed with backlogged supply chains, delivery logistics problems, and lack of labor contributed to by auxiliary unemployment payments. Inflation rates of over 7% have resulted in 2022 to date.  Travel and hospitality were hard hit and in most Western economies services account for 70%–80% of GDP (Salterio, 2020, p. 570). Discussion of risks and projections for future in the MDA sections will be difficult, but must be verified by the auditors. Salterio recommends projections be performed for a range of possible results (2020). “Consumer Price Index is up 7.9% in February, 2022, the largest 12 month increase since 1982 as soaring energy costs, labor shortages, and supply disruptions coupled with strong demand weigh in ” (Pickert, 2022, p.1). Energy remained the biggest contributor (27% vs 29.3% in December), with gasoline prices surging 40%. The surge in energy costs due to war in the Ukraine is still to come. The inflation was seen “peaking in March but the recent developments in Europe coupled with the ongoing supply constraints, strong demand, and labor shortages will likely maintain inflation elevated for longer” (Trading Economics, 2022).

“Auditors are reminded that the longer the subsequent period is extended beyond the norm, for example, due to COVID-19, the greater the risk of material misstatement with respect to subsequent events. […]auditors’ subsequent events review procedures will need to be more extensive and robust” (Levy, 2020, p. 26).             Reports “need information about the resources of the entity, claims against the entity, and how efficiently and effectively the entity’s management and governing boards have discharged their responsibilities to use the entity’s resources”. The uncertainty combined with the ballooning inflation makes fair market values unstable, and predicted income and expenses unsure. Management has to ensure they are abiding by regulations and contracts.  Transparent reporting is needed for investors to vote wisely on leadership (SFAC No.8, Ch1, 2021, OB4).

With the upheaval caused by the pandemic, even the question of ‘going concern’ is prevalent whether businesses can survive the ‘shutdown’ by delivering product without personal contact or whether they will resume operation as restrictions loosen. The evaluation of assets and liabilities must be examined after such an upheaval. What should the value of ‘good will’, and marketable securities, inventory, receivables be after looking at the value chain? How many suppliers or customers did not survive? Impact of cost increases from shortages and now inflation are critical factors complicating evaluations.

With government subsidies for labor costs to prevent layoffs and lost revenue, there are incentives and opportunities for deliberate and accidental errors. There are new business expenses for cleaning, protective equipment, signage, monitoring and testing employees or business entrants. How to measure and report this influx of new expenses and its effect on the financial condition of the enterprise is a new challenge. Business was put into a state of flux by the scramble to survive the pandemic.  Some businesses scrambled to meet new increased demand in the health and safety areas. Whether these claims and measured expenses are objective and accurate are a challenge to auditors.

How should businesses best estimate lost profits through such tumultuous conditions? Estimates used by management and audited by accountants become much more subjective. Auditors must practice due care and diligence to obtain objective evidence (AICPA, 2021).  “Many of the issues will require greater-than-usual reliance on accounting estimates; due to the higher level of uncertainty, these estimates will be inherently more difficult and less reliable” (Levy, 2020, p. 27.

Accounting and Auditing Issues

Explain the accounting and auditing issues related to the coronavirus event with respect to accurately determining reportable amounts and disclosures of events

As discussed in No. 1, the value of assets and liabilities, and future projections of continuing operations all need to be examined for impairment, risk and variability. Asset values would not be written up, but some may be written down or off as bad debt resulting in possible losses from just stabilizing the values to current market conditions. Where previously ‘going concern’ may have been assumed, it is a question that must be seriously evaluated by auditors for each engagement now. MDA sections should discuss the impact of the supply chain, inflation, and other aspects caused by the pandemic in explanation of their results and projections for the future. Projections coming out of the pandemic have greater risk of variability and should be discussed with a range of possibilities to be more transparent to stakeholders. Auditors will have a more difficult job verifying the risk and projections made by management and need to exercise care and due diligence along with professional skepticism (AICPA, 2021).

Public Interest

Which group(s) represent the public interest with respect to accounting for the events surrounding the coronavirus and what are their interests?

Member accountants are charged with serving the public interest by the Code of Professional Conduct:

0.300.030 The Public Interest .01 The public interest principle. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism. .02 A distinguishing mark of a profession is acceptance of its responsibility to the public. (AICPA, 2021, 3.300.30.01)

This includes responsibility to all the stakeholders whether they are investors, potential investors, the community affected by the production or product, employees, vendors, creditors, customers as well as regulators/agencies that put rules in place to protect the public. It includes honest reporting of required information to obtain government subsidies to aid businesses as well as to protect the public health.

Adequate Crisis Management

Based on what you know to date, evaluate whether the crisis has been handled properly by the various stakeholders. Use ethical reasoning to support your view.

When something new occurs and leadership must determine what steps to take, it is difficult to know what to do first.  The emphasis on masks and social distancing were steps they thought would be effective. Shutting down the economy to keep people at home self-isolating was an effort to slow the spread of the pandemic to make the existing hospital facilities go as far as possible. Emphasis on production of ventilators and other supplies was necessary. Concentrated effort to devise a vaccine was needed.  Ethically, citizens should be willing to vaccinate for the general public’s best interest and to obey orders to stay home for the common good.  Hoarding of supplies, whether by individuals or agencies is not ethical and causes shortages for everyone else.  However, not knowing the long-term effects of the vaccines, individuals should be able to decide for themselves whether to take vaccines or isolate and wear masks. I think most people try to do the best they can as they understand, in these situations, but can be misled by deliberately spread mis-information.  It is difficult to know what to give credence to in these situations.

Research was recently issued that the masks were ineffective, counter-productive and the social distance insufficient. But countering research released by Chalmers University of Technology (2022) says masks do reduce chances of spread and limit the droplets travel to less than a meter where unmasked subjects sneeze transported droplets up to 7 meters. How difficult to be in the situation having to triage who gets access to the ventilator and who does not (Rosenbaum, 2020)! It is difficult to know if authorities are taking the right step at the right time, but we are told to obey authorities for God has allowed them to occupy their offices.

“Romans 13:1-7—ESV-Submission to the Authorities–Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Therefore, whoever resists the authorities resists what God has appointed, and those who resist will incur judgment. For rulers are not a terror to good conduct, but to bad. Would you have no fear of the one who is in authority? Then do what is good, and you will receive his approval,” (The Holy Bible, 2016).

References