Accounting and the Corona Virus | China Accounting Blog | Paul Gillis

Accounting and the Corona Virus

The corona virus is certainly altering my life. I am in California between semesters but have been told not to return to school until further notice. My return flight was cancelled by the airline so it may have been difficult to return anyway. The crisis is likely to create a lot of accounting woes for Chinese companies. It already seems to be having a negative effect on markets.

It is Chinese New Year holiday time, so most companies staff took last week off and most have been ordered to take off this week. Some companies, including most of the Big Four, have told staff to work from home this coming week.

Annual reports for public companies are normally due early in the year. The US Securities and Exchange Commission requires Form 20F to be filed for calendar year companies by April 30. The Hong Kong Stock Exchange due date for these companies is March 31. The Shanghai Stock Exchange has already extended the due date to April 30.

In a normal year, the preparation of accounts by companies and audit by independent accountants follows a furious pace once people return from the New Year holiday. Since most companies are delaying the return of employees this year it may prove difficult to get annual reports out on time this year.

This problem should only apply to Chinese companies, not to multinational companies doing business in China. In most cases, the audit work done in China on multinationals was completed before Chinese New Year because they typically release earnings earlier. Although statutory audit reports are due in May, work on those typically starts later and I expect Chinese authorities to be reasonable about delays.

If one of the best cases seems to be that the virus begins to fade in a few weeks. That could enable companies to get back to work by the end of February and give them a fighting chance to get the annual reports out by the due dates. More likely,I expect that recovery comes slower and many companies will miss the deadlines. I expect China and Hong Kong to extend the deadlines, but I think this is less likely in the US. When a company listed in the US is unable to file its annual report on Form 20F by the deadline, it is required to file form 12B-25 to obtain a 15-day extension. That may prove inadequate if the crisis worsens, and while the SEC would have the authority after 15 days to begin disciplinary proceedings, I think it is likely they move slowly.

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