The recent pandemic of the coronavirus has crippled the world economy. The united states of America being the world giant economic Centre, the rising rate of unemployment is uncontrollable. Coronavirus is a respiratory disease that affects the throat and the lungs leading to death in less than a month. The pandemic has no specific cure, treatment, and vaccine. The disease is rated to be the second-worst world pandemic ever experienced apart from the Spanish flu that started from 1918 to 1922, killing millions of American Soldiers and the people. The world health organization has declared the disease the word pandemic as the disease kills thousands of people daily. A large number of the experienced human resource workforce have died, creating many more changes in the economy. An economy is a way a country regulates the production of goods and services and the circulation of currency. Production of goods and services is always directly proportional to population increase and Us dollars in circulation (Sawyer, 2019). The coronavirus pandemic has strained the economy, causing the lockdown, loss of human resources, general uprising shortage of products in the economy, and government expenditure.

1.1 Problem definition

Unite states companies produces millions of tones of products world from plant and machinery, pharmaceuticals, agriculture, planes, motorcycles, educational products, technological advancement, and information communication networks. The companies have different accounting periods in which they present the financial statements to the shareholders to analyze the financial performance of the business. The trading accounts can be prepared quarterly after three months, semiannually, after six months, and annually after one year. The trading period is the accounting time of the financial performance of the business in terms of revenue recognition, preparation of income statement, statement of financial position, and the cash flow statement of the company. The coronavirus pandemic has caused lockdowns of the united states economy as the citizens are denied freedom of movement from the homes. There is an inadequate market for the goods and services that are produced in the country. Companies have closed the business of operation as there is no imports and exports of some goods and services have collapsed. The hospitality industry that creates millions of US dollars is totally in lockdown. The companies have to follow the generally accepted accounting principles that are prepared by an international accounting standard board to report the incomes and the expenses that the company generates. The company books of accounts must be audited by independent auditing firms to verify whether the management reports are true and fair. The companies have difficulties in reporting financial estimates, forecasted cash flow, recognition of depreciation of the idle assets in the companies, and the impairment of the goodwill.

1.3 Background

A stable economy improves the living standards of people in the country. Economic growth is the increase of the country’s total production of goods and services, which can be measured in terms of the increase of the country’s gross domestic product (Deepashree, 2007). The country uses the national income statistics figures for planning on how to generate job opportunities, population regulation, expanding the manufacturing industries, providing public utilities, and providing a favorable economic and political environment for the businesses to thrive. A favorable economic environment is open where the price of goods and services is determined by the demand and the supply of the goods in the markets (Sawyer, 2019). The market is favorable where there is adequate products and US dollars to help minimize inflation, economic recession, and deflation. Inflation is the general increase in prices of goods and services over a given period (Deepashree, 2007). Since the first case of corona virus was identified and reported in the United States of America, the country is experiencing a shortage of fast consuming goods. There is less disposable income to the household as most of the production companies are not able to operate. The corona virus pandemic spread has caused negative effects retail, transportation sector, Airline, hotels, sports, technology, automakers, gambling, travel to mention a few. The companies are struggling on how to produce goods, find market for the goods, pay the creditors, receive payments from debtors, export the products to other countries.

Most investors are straining to settle short term and long term debts that are affecting the company. There is no income generate as the market keeps on deteriorating. The shareholders are incurring losses as the company assets and machines are idle. There is a huge communication breakdown of the company employees, suppliers, debtors, markets and other significant stakeholders. This makes the company to face difficulties in preparing the financial statement, statement of financial position and the cash flow statement. The principle of going concern is test to most companies in the united states. Financial statements are books of accounts that are prepared at the end of the trading account to show the financial performance of the business. The performance can be measured in terms of increase in sales, reduction in production costs, increase in market share, profitability, increase in the number of employees and implementation of modern technology in the production of the goods and services (Ittelson, 2009). Companies are encountering challenges on how they are going to monitor internal controls, meet loan agreements, going concern disclosures.

2.0 Literature review

According to Horowitz (2010) states that world pandemics causes uncertainties in demand and supply of goods and services in the economy. Currently corona virus has resulted to closure of most significant industries for instance transport, travel, tourism, airlines, sports, gambling, agriculture to mention a few. In hotels, most the companies have close down completely as there is no any production activities is in progress. The industry could estimate and forecast sales in terms of the number of the estimated customers. most of the hotels used to host the customers. The corona virus pandemic resulted to the enacting of policies that restricted the operation of the business in major towns. The enacted policies require customers to purchase only take away meals. This has caused loss of jobs to over the 10 million Americans working in the hospitality industry. The Americans have specifically hard hit over the emergence of the covid-19 virus. A research conducted in the sales declines shows that there is a huge decline in revenue generated since corona virus cases were identified in the united states of America. This has rendered the marketing and the budgeting department to realize the budgeted sales.

The economy is anticipated to slow below 5% if the corona virus pandemic continuous globally (Hutt, 2020). Globalization has made the world economies to be integrated and interconnected (Deepashree, 2007). The effect of one economic affects the other directly or indirectly. United states of America have the most stable economy in the world followed by that of china. When this giant economy is shaken, they affect the small growing economies in the developing countries. Most of the developing countries that are characterized by absolute poverty, inadequate health facilities, high level of illiteracy, unskilled manpower, low technology, unstable political goodwill, and poor economic structures depend on foreign aid from the developed economies. The corona virus pandemic has resulted to disparity in disposable income among the citizens. Most of the small retail business operations are closed as a measure to curb the spread of the corona virus. The problem of unemployment as escalated since the outbreak of the corona virus. Most people are encouraged to work from homes. Some other production processes require the employees to be present to provide the physical labor. The construction and manufacturing industries are faced with shortage of skilled labor has the corona virus pandemic has caused death to skilled experts. There is minimum savings and investments by the companies and the households. The households have less or nothing to save as production is halted in some manufacturing companies. The companies have nothing to save as the production costs exceeds the revenues generated from the sales. Most of the US manufacturing factories are closed. There are low productions of products that can be exported to market destinations of the company products. Corona virus is a non-adjusting event that resulted in occurred towards the end year of 2019. Most businesses had already closed the books of accounts. In 2020, the first quarter of business reporting has been affected by the corona virus. Companies are facing challenges in preparing the financial statements as there is difficulties in expected loan defaulters, fair value measurements, assets impairment, accounting estimates, financial disclosures and hedge accounting.

The corona virus pandemic has eroded many internal control systems that are used by companies. International auditing standard 315 identifying and assessing the risks of material misstatement. The standard requires that the financial statements prepared by the management should be free from errors and material misstatement. The internal control systems of the company should be strong to minimize the occurrence of errors and fraud. The corona virus pandemic has resulted to loss of employees, creditors, managers and other relevant stakeholders who have primary information that is useful in decision making. The auditors need to gather sufficient and appropriate evidence that helps to arrive the audit report that aligns to the state of the financial statements. The main role of the auditor is to protect the shareholders from the dishonesty that may arise from the management and the directors. Financial misstatements are errors and frauds that are orchestrated by the management whose effect can change the economic decision of the financial report. The financial statements books are relied by many stakeholders including the government, employees, shareholders, creditors and the members of the public.

According to the international auditing standard 500 Audit evidence, the auditor must perform many tests to ascertain when the financial statements are correct. The auditor performs substantive tests and the tests of control to ensure the accounting systems follows the policies of the internal accounting standard board (Ittelson, 2009). The substantive procedures done performed by auditors include the analytical procedures, observation, inspection, recalculation and re-performance, and analytical procedures (Ittelson, 2009). The test of control help auditors compare original documents with the recorded transactions, ascertain the credit limits for debtors, analyzing the ability of the accounts receivables being paid and the credit worthiness of customers. The covid -19 pandemic has made the international accounting standard board to reconsider some accounting policies that will be used at this period. The audit approach need to be changed to accommodate the changes that arises by the covid-19 virus. Freedom of movement is restricted, international trade is curtailed and the customers are not able to buy the goods and services. The companies are counting on losses, uncertainty financial risk, and business in unpredictable demand for the goods and services. The companies are facing challenges on how to prepare the financial statements with some departments not functioning. Most the company employees are facing difficulties in accessing the office buildings, others have been infected by coronavirus while some have lost their life. Some essential operations function for instance the production department has been halted due to the spread of the corona virus. This affects the validity of the accounting documents kept by the companies.

Impairment of inventories is an approach that companies need to asses as the covid-19 situation keeps on getting worse. Perishable products have lost the carrying amount as the products expires very easily. This causes a significant drop in the value of the business as there is no market for the product. There are many debts to be written off as many credit sales would not be paid by the customers (Ittelson, 2009). unplanned labor and raw material shortages causes disruption in the production process. This makes the fixed cost to be high as the manufacturing overheads are evenly distributed among the few units produced. In economics, companies enjoy the economies of scale benefits by producing in large scale. The fixed costs are distributed evenly on the total output units. The more the units are produced, the more the variable cost but less fixed cost. The corona virus pandemic has reduced the total quantity produced as there is inadequate market for the goods produced.

Many companies are facing challenges in revenue recognition. For the companies to increase sales, they usually enter into contracts that usually benefit the customers. They provide trade discount and quantity discount if they can be able to settle the debt within the specified business period. Some of the customers opted to refund the products when they realized the market had grown worse for the products. Since the introduction of travel lockdown, the price of fuel has suddenly dropped drastically. The companies are facing challenges to record the pending revenue earned which is pending. The banks are struggling to ascertain how they will collect the huge loans that are rendered to investors in the economy. The business companies must fulfil the loan repayment contract signed with the lenders. Accountants must disclose all the information according to the new debt restructuring methods once the economy normalizes. The accounts receivables and payables must also be addressed by contractual parties in written agreement to ensure once covid-19 situation gets better, the companies can obey the covenant.

Covid-19 has caused many changes in reporting the financial statements of companies. Management teams have changed company plans to accommodate the threat caused by the corona virus. Projected cash flows and future estimates of revenues and costs have been altered. The management has expanded disclosures to provide more information resulting from the covid-19 impact on the economy. The auditors and management should describe the going concern and address the uncertainty that may arise due to material misstatement of the financial statement as many employees are not at work.

3.0 Methodology

Research approach

The quantitative research was conducted on a few American companies that have reported the first quarter of the year financial performance. Revenue percentage drop in figures data is analyzed for the companies.

3.1 Study population

The Corona virus pandemic has affected most of the companies in every sector in the economy. Some companies were studied to analyze what approaches they have adopted in relation to the outbreak of the corona virus. The research integrates many area as that affects the company operations from analyzing company inventory, impairment of assets, trade receivables, trade payables, fair value measurement, non-adjusting events. The companies were selected randomly to ascertain the corona virus effects.

3.2 Data collection and survey design

The data is collected from the company internet websites and the world meter website showing the impact of corona virus in the economy. Some of the companies analyzed include Abercrombie and Fitch company, Agilent Technologies, American Airlines. The companies have encountered challenges on reporting in reporting the first quarter of the year financial performance due to changes in the accounting approach that needs to be implemented to allow the company to prepare the appropriate books of accounts.

4.0 Empirical analysis

4.1 Corona virus impact on Abercrombie and Fitch company

The company has closed shops and some of the manufacturing plants in the foreign countries. The company expects the corona virus pandemic will cause $ 80 million us dollars loss. The company has already recorded 6.95 % revenue decrease in the first quarter of the trading period. The company has also encountered difficulties in preparation of financial statements. Some its employees are on compulsory leave, there are many pending debts that the company might not be paid due to the corona virus outbreak.

4.2 Agilent Technologies

Agilent technologies company has also been hit with the world pandemic othe fcorona virus. The company reported -2.74 % decrease in revenues in the first quarter of the year 2020 revenues. The company expects $ 40 million revenue drop in the second quarter of the year in the year 2020. The companies are not able to ascertain the best approach to measure the depreciation of assets that are idle and the amortization expenses of the capital expenditure. In the first quarter, of the trading account, many outstanding trade receivables creates doubt on when they will be settled.

4.3 The American Airlines company

All the activities of the American airlines halted as the situation of corona virus worsened. The company has reported a drop in revenue of 4.4% in the first quarter of the year. The business is encountering difficulties as there is no market. The covid-19 virus restricted the movement of people to various countries.

5.0 Conclusions and recommendations

Corona virus pandemic has caused loss of human labor, loss of sales, increased operating costs and economic decline in the past 4 months. There is zero production in other industries that has led to less disposable income for people to use in purchasing the products. The lockdown has led to closure of small retail businesses that support of the employees in the economy. The companies have had difficulties valuing inventories especially perishable goods that go bad easily. Covid-19 pandemic to introduce new approach of revenue recognition as most of the debts are outstanding. This has also resulted to the new schedule of repaying debts due to the financial crisis that has affected financial markets. The future research should focus on elaborating the more disclosures on the financial statements due to the corona virus pandemic.

6.0 References

Blanset, D., Hutt, J., & Morgan, S. (2020). Current use of animal models of disease for nonclinical safety testing. Current Opinion in Toxicology, 23-24, 11-16. https://doi.org/10.1016/j.cotox.2020.02.005

Deepashree. (2007). Principles of economics (For Delhi university B. Com pass course). Tata McGraw-Hill Education.

Horowitz, M. C. (2010). The diffusion of military power: Causes and consequences for international politics. Princeton University Press.

Ittelson, T. R. (2009). Financial statements: A step-by-step guide to understanding and creating financial reports. Red Wheel/Weiser.

Sawyer, M. C. (2019). The Kaleckian approach to macro-economics. Macro-Economics in Question, 121-154. https://doi.org/10.4324/9781315496252-6

The Economic Impact of Coronavirus on Financial Statements of Companies; A Case Study on the United States Market

1.0 Introduction