Accounting standard setters usually take forever to issue guidance on substantive topics but it took only a matter of weeks to pull together a guide on the essential accounting and auditing issues arising from the coronavirus pandemic.

Former chair of the Australian Accounting Standards Board, Kris Peach, told Banking Day in an interview just prior to stepping down from the role that the guidance, which addresses core issues of judgement, was fairly quickly prepared because the principles people would apply in thinking about the appropriate accounting and auditing did not change.

Peach’s five-year term saw her continue to liaise with international standard setters, shepherd international accounting pronouncements through the domestic legislative process and, more controversially, further progress the elimination of special purpose financial statements.

The coronavirus pandemic has heightened marketplace sensitivity to compliance with accounting and auditing standards and both the AASB and the Auditing and Assurance Standards Board moved quickly to provide Australian specific guidance to the market.

Global regulators such as the Securities and Exchange Commission in the United States and the major accounting firms have also been issuing guidance given that the pandemic had spun the world into economic uncertainty. Supply chains were disrupted, businesses closed, and people told the shut themselves away from the world to limit the spread of the virus.

The coronavirus, Peach observes, has forced people to consider matters that go beyond the usual compliance issues that would normally concern them.

“I think what tends to happen is people are focused on specific areas of impact. What happens with things like [the pandemic] is you actually have to consider a much broader range of issues,” Peach explains.

Amongst the issues that Peach sees as being important are the valuation techniques that companies might apply at the present time and the underlying assumptions that are made by companies.

One of those areas of concern for the banking sector, its stakeholders and analysts has been the adoption by accounting standard setters of the expected credit loss model, which replaces an incurred credit loss model that was criticised at the time of the global financial crisis.

Peach notes that the financial statements prepared by entities can only represent what they believe to be the best estimate of an impact at a time and that it does not necessarily mean an entity got it wrong.

“You need to come up a balanced assessment of what that impact is and really the most important thing right now is to be transparent about what the assumptions are [regarding expected credit losses],” Peach says.

“And thinking about whether you should be doing what NAB did, which is explain a couple of different scenarios and show the outcomes for those different scenarios, particularly if you are likely to be hugely impacted by COVID 19.”