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Speaking of “compound volatility,” this summer KPMG also released an in-depth guide to accounting for economic disruption with guidance on how various balance sheet and income statement line items and other disclosures may be impacted. KPMG encourages management teams to be proactive when it comes to considering how volatility impacts their financial statements and financial reporting:

During periods of economic disruption, it is crucial for companies to promptly identify the potential financial statement impacts and consider the accounting and disclosure consequences. Regulators place a strong emphasis on high-quality financial reporting during these times and closely scrutinize the sufficiency and timeliness of related disclosures. Transparency becomes particularly important, especially when it comes to estimation uncertainties and the underlying basis for critical judgments used in financial reporting.

The guide has chapters on:

– Revenue
– Financial assets, derivatives & hedging
– Inventory
– Goodwill and indefinite-lived intangibles
– Long-lived assets, leases and equity method investments
– Liabilities
– Compensation and benefits
– Income taxes
– Financial statement presentation, disclosures & MD&A

Each chapter starts with a description of how the relevant topic may be impacted by economic disruption and lists example questions to consider, with cross-references to the sections that address each question. Here’s an excerpt on compensation and benefits:

In response to economic disruption, companies may take actions related to compensation and benefits that have an impact on financial reporting. Examples include:
– providing revised or new compensation arrangements;
– evaluating existing compensation arrangements to determine if any specific terms, conditions or estimates have been affected;
– making modifications to compensation and benefit arrangements; and
– taking workforce actions that could result in pension or postretirement curtailments or settlements, or the need to pay severance and other postretirement benefits.

The following are example questions to consider that are specific to economic disruption and the potential impact to compensation and benefits and associated accounts (not exhaustive).

– Have either of the following related to share-based payments been affected: the probability assessment for performance-based awards; and/or the volatility input used to value awards on the grant date?
– Have any share-based payment awards been modified (e.g. changes to vesting criteria or strike price) and/or are discretionary clauses or claw back provisions starting to be included in awards?
– Have termination benefits (voluntary or involuntary) been offered or implemented?
– Has a significant event occurred (e.g. plan amendment, curtailment or termination) that could cause an interim remeasurement of defined benefit pension or postretirement plan assets and obligations?
– Have new or revised sick leave or paid time off policies been implemented or have furlough arrangements been offered to employees?

– Meredith Ervine