Financial reporting and audit

The impact of COVID-19 on financial reporting and audit.

Once the lockdown has ended, there is considerable uncertainty about how quickly the New Zealand economy will recover. This has implications for the financial statements and (if relevant) audit reports of sporting organisations.

Going concern

Financial statements are based on the assumption that an entity is a going concern (i.e. that it will continue to operate for at least 12 months from signing the financial statements), which may be difficult to demonstrate given the uncertainties associated with COVID-19. This will likely be a major area of focus for auditors. 

An organisation can demonstrate that it is a going concern by preparing a cash flow forecast that shows that it can continue to operate for 12 months from the date of signing the financial statements. Your auditor will likely challenge your assumptions (such as by asking you to reduce forecast revenue) to see what impact that would have on the ability of the organisation to continue operating.

Some organisations have very few fixed costs, with the majority of their income and expenses being linked to competitions and events. Such organisations won’t receive income, but also won’t incur most of their expenditure, while there is a ban on public events. If an organisation like that has sufficient cash resources to cover its fixed expenses for the 12 months from the financial statements being signed, it will likely be a going concern.

If an organisation is a going concern, but there are uncertainties associated with that conclusion, the auditor will likely include a Material Uncertainty Related to Going Concern[1] paragraph in the audit report.

Subsequent events

If an organisation’s balance date is 31 December 2019 or earlier, the impact of COVID-19 will have occurred subsequent to balance date. In such instances, the financial statements won’t be adjusted to reflect those events, but a note will need to be added to the financial statements to explain what has happened and what it means for the organisation. Where that occurs, the auditor may include an Emphasis of Matter[2] paragraph in the audit report to direct readers of the audit report to that note.

Reporting deadlines

All New Zealand regulators, including Charities Services[3] and the Companies Office[4], have stated that entities will not be held to their normal reporting deadlines if they have been impacted by COVID-19. If you consider that you will need an extension of time, you should contact your regulator as soon as possible.


[1] A Material Uncertainty Related to Going Concern paragraph in the audit report is not a modification to the audit report – rather, it is a mechanism for the auditor to let readers of the audit report and financial statements know that the financial statements have been prepared on the basis that the entity is a going concern, but that there are uncertainties associated with that conclusion.   

[2] An Emphasis of Matter paragraph is not a modification to the audit report – rather, it is a mechanism for the auditor to let readers of the audit report and financial statements know that the subsequent events note contains important information.

[3] https://www.charities.govt.nz/covid-19/frequently-asked-questions/

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