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Analysis

COVID-19 impact on the power, utilities, and renewables industry

Accounting and financial reporting considerations

The impacts of COVID-19 on the power, utilities, and renewables industry continue to evolve. The magnitude of the impacts on accounting and financial reporting will depend largely on the length and severity of the economic downturn.

New challenges bring new accounting and financial reporting considerations

The coronavirus disease 2019 (COVID-19) pandemic is affecting major economic and financial markets, and virtually all industries are facing challenges associated with the economic conditions resulting from efforts to address it. Many entities have seen sharp declines in revenues due to regulatory and organizational mandates (such as “shelter-in-place” mandates and school closures) and voluntary changes in consumer behavior (such as social distancing).

As the spread of the pandemic increases, entities are experiencing conditions often associated with a general economic downturn, including, but not limited to, financial market volatility and erosion of market value, deteriorating credit, liquidity concerns, further increases in government intervention, increasing unemployment, broad declines in consumer discretionary spending, increasing inventory levels, reductions in production because of decreased demand and supply constraints, layoffs and furloughs, and other restructuring activities. The continuation of these circumstances could have a prolonged negative impact on an entity’s financial condition and results.

Power, utilities, and renewables industry accounting and reporting

Developing impacts of COVID-19 on the PU&R sector

The magnitude of the impacts will depend largely on the length and severity of the economic downturn experienced in impacted regions. Governmental policy directives in response to the outbreak will also need to be carefully considered. In certain markets, such directives may directly impact local utility providers as governments attempt to provide financial relief to citizens through measures which could include reduced utility bills. COVID-19 is expected to impact both regulated and unregulated operations. This article discusses certain industry-specific accounting and financial reporting considerations related to the COVID-19 pandemic and is organized as follows:

Broader accounting and financial reporting considerations

Entities must carefully consider their unique circumstances and risk exposures when analyzing how recent events may affect their financial reporting. Specifically, financial reporting and related financial statement disclosures need to convey all material current or potential effects of the COVID-19 pandemic. It is also critical that management understand the risks entities face and how they are affected by them. Further, SEC registrants must consider whether to disclose information in areas such as MD&A or the risk factors section in addition to their disclosures in the footnotes to the financial statements.

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