Considerations in Making Financial Reports
Since the start of covid-19 pandemic, a lot of companies have faced quite a few problems in regard to their financial situation. Companies have made plans before but because of the pandemic, the companies have to make new plans in order to save the companies from falling apart any further. Not just the plans that they have to revise, but also their financial reports that got affected by the situations.
Back then, companies did forecasting to make an expectation of how much they will spend and how much they will get in return. Forecasts were done without special cases so when the covid-19 pandemic broke out, companies were having a hard time adjusting to the situations. Hence, companies make a special adjustment for a few cases on their financial reports. The cases, such as inflation, supply chain constraints, and labor shortages, are affecting companies’ forecast results.
Common topics of inflation that may affect companies’ financial reporting are how the costs of doing operational work increased, a promised revenue for long-term contract, and how inflation makes the interest rates rise. Each of the situations may result in a way different result than what the company had forecasted before. Not just about the forecast but its accounting system might have to change as well. When inflation happens, companies have to renegotiate for their long-term contracts, such as supply agreement contracts, thus the accounting system has to be reclassified again so there is no implication.
Supply Chain Constraints
It is a fact that manufacturers, suppliers and distributors are in a chain. Hence, when there is a problem, it will affect the whole chain and resulting in a halt in economic growth. The disruption made the price for moving goods in the supply chain increased. With increasing prices, companies have to make adjustments based on the expected net value realizable that can be guaranteed. Companies would also have to ensure the use of all of the materials is written accordingly in the balance sheets.
With increasing prices in materials used for operational work, it means that companies have to revise their budgeting plan to either produce less in terms of quantity or use alternatives for the materials. And less labor intakes will be used. The new budgeting makes the companies have to evaluate the assumptions used for the pension liability for their workers.