COVID-19 has impacted businesses in some way or another. The degree and extent of the impact are different from one company to another. In this article, we will share with you some insights on what has listed companies in Malaysia disclosed in their audited financial statements on the impact of COVID-19 on their businesses and financials. The observation made in this article is based on the audited financial statements of listed entities (with March, May, and June 2020 year ended) as published on the Bursa Malaysia website as at the date this article is written.
Before we dive into the details, let’s have a brief understanding of the requirements of MFRS 110 Events After the Reporting Period (IAS 10 equivalent). Why MFRS 110? Because of the impact of COVID-19 kicks in due to the movement control order. All businesses (except under essential services) were required to suspend their physical operations, hence hurting the earnings of the companies. MFRS 110 differentiates between an event that requires an adjustment (i.e. an adjusting event), and which does not require an adjustment (i.e. non-adjusting event) to the financial statements’ numbers. To determine whether an event is adjusting or not, it is important to understand whether the event provides evidence of conditions that existed at the end of the reporting period or only indicative of conditions that arose after the reporting period. An adjusting event will affect/adjust the numbers while a non-adjusting event only requires the disclosures of (i) nature of the event; and (ii) estimated financial effect (if the event is material – it is hard to argue that the COVID-19 is not a material/significant event).
In Malaysia, MCO was put in place on 18 March 2020. Having said this, it’s believed for companies with financial year-end post-18 March 2020, COVID-19 will be an adjusting event, mainly because the MCO and COVID-19 as a health pandemic were announced before the financial year-end. As an adjusting event, COVID-19 will also give rise to other financial reporting impacts of the company, including the company’s going concern assumption.
Now, let’s see what the listed companies in Malaysia have disclosed so far about the COVID-19 impact in their audited financial statements.
30 June 2020
- TMC Life Sciences Berhad: In Note 33 (significant event note) of the audited financial statements, the Group briefly mentioned that the Group experienced a challenging operating environment due to COVID-19 as well as its initiatives to manage the impact from COVID-19 without a specific explanation on the financial impact for 2020 financial statements. The financial statements of the Group can be accessed here.
- RGT Berhad: No specific disclosure or presentation is made in the audited financial statements relating to the impact of COVID-19. However, it’s observed that the Group has reported an income from government grant under the wage subsidy program amounting to RM24,000 during the financial year as disclosed in Note 23. The grant income is offset against the employee benefits expense in the financial statements. The financial statements of the Group can be accessed here.
- FoundPac Group Berhad: No specific disclosure or presentation is made in the audited financial statements relating to the impact of COVID-19. Similar to RGT Berhad, it’s observed that the Group has also reported income from government grants under the wage subsidy program amounting to RM50,400 during the financial year as disclosed in Note 21. The grant income is also offset against the employee benefits expenses in the financial statements. The financial statements of the Group can be accessed here.
31 May 2020
- Ancom Berhad: In the Group significant event note (Note 42) to the financial statements, the Group stated that it recorded a total impairment of RM5.5 million during the financial year as the result of the COVID-19 pandemic. This amount arises from the adverse adjustments made to the Group’s forecasted operating cash flows included in the value in use calculation. The impairment loss recognised is adjusted against the goodwill on consolidation of the Group. The Group nevertheless has also stated that it has sufficient cash flows and undrawn facilities to manage its liquidity needs. The financial statements of the Group can be accessed here.
- DPI Holdings Berhad: In the significant events note (Note 39), the Group had mentioned in general that the COVID-19 had affected the business and economic environment of the Group. No specific financial impact being mentioned. It was only mentioned that it was challenging to determine the duration of the impact on business and to measure the potential impact on the financial statements of the Group. The financial statements of the Group can be accessed here.
31 March 2020
It is not expected that much details are being disclosed in the audited financial statements of companies with 31 March 2020 year end. The MCO only took effect on 18 March 2020 hence, businesses are more cautious or uncertain about what to disclose in the financial statements. Although it’s believed that the pandemic is an adjusting event to the 31 March 2020 year end companies, it’s observed that not much disclosures are being made in the financial statements where most companies only provided a general statement on the impact/expected of the pandemic to the overall business, with some stated that the pandemic financial impact is not material to their financial statements. Below are additional insights and summary for your reading:
- Nationwide Express Holdings Berhad: It is worth mentioning that the Group had revisited their expected credit loss methodology due to COVID-19 to better predict or estimate the loss. The Group has also calculated overlays and adjustments to their simplified models as well as adjustments to the probability of default for individual customers on a collective basis. The Group has mentioned this in their Note 29(d) to the audited financial statements. The Group audited financial statements can be accessed here.
- Sentoria Group Berhad: The Group had disclosed quite a fair bit of discussion on the Group’s assessment of going concern as the effect of COVID-19 in Note 2, including implementing several restructuring measures in response to the effect of the pandemic. The Group also expects its Property Development and Leisure Division to only come back to normal within 2 years from the date of authorisation of the financial statements. The Group audited financial statements can be accessed here.
- PNE PCB Berhad: The Group reported the COVID-19 event as a non-adjusting event in its 30 March 2020 financial statements. As at the date the financial statements of the Group were authorised for issue, no financial impact has been quantified by the Group due to lack of visibility on the end date of the pandemic. The Group audited financial statements can be accessed here.
- Global Oriental Berhad, MSCM Holdings Berhad, Stella Holdings Berhad, Versatile Creative Berhad and Ajinomoto (Malaysia) Berhad: These groups disclosed in their significant event note that the impact of COVID-19 has no material adverse effects on the financial statements of the Group for the year ended 31 March 2020.
- Jade Marvel Group Berhad: The Group disclosed in the significant event note that the financial impact of the COVID-19 could not be reasonably estimated as at the date the financial statements was authorised for issue due to the inherent nature and unpredictability of future development of the virus and market sentiment.
We will continue to share a summary of observations with readers on how Malaysian listed companies with other financial year ends have disclosed the impact of COVID-19 in their financial statements. Stay tuned!