FAR Subsequent Events – Covid-19 Impact
American companies published their fiscal 2019 annual report earlier this year. On a review of the 2019 annual report** of Home Depot, we found a COVID-19 disclosure on page 21 as below:
“The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. The pandemic has impacted and could further impact our operations and the operations of our suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. As a result of COVID-19, we have reduced store operating hours, expanded our paid time off policy for associates, and shifted certain store support operations to remote or virtual, and we may face additional labor-related costs. We are also taking steps in our stores to manage foot traffic to better protect our customers and associates. In addition, in certain jurisdictions, we have had to cease sales of or delay commencement of work on certain services deemed “non-life-sustaining.” **
According to Accounting Standards Codification (ASC -855), companies are obligated to let the public/investors know about events subsequent to the balance sheet that can have an impact on the business. If the condition relating to subsequent events existed on the balance sheet date, such event is recognized and disclosed in the financial statements and if such condition did not exist on the balance sheet date, it is only required to be disclosed. In the case of Home Depot even though COVID-19 was existing in 2019, WHO declared it as a pandemic only in early March 2020. Therefore, the pandemic of COVID-19 was disclosed in the notes to the 2019 financial statements as a subsequent event that can have an adverse impact on its financials in subsequent periods.
Sources: ** Home Depot (https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/2020/2019_THD_AnnualReport_vf.pdf )