This update considers the potential impact of the new COVID-19 (coronavirus) on the yet to be published annual reports and financial statements of housing associations.
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The measures put in place by the Government to limit the spread of the virus have been changing on a daily basis. It is expected, at least in the shorter term, the limiting of the movement of people will continue and may even increase.
All of these developments and measures may have a broad range of implications for housing associations. The degree of impact on individual associations will depend on a number of factors including the association’s mix of rental, outright sales and shared ownership, the level of developments ongoing, contractual relationships, whether or not care is provided, staffing models, insourcing or outsourcing of repairs and maintenance, the nature of the association’s assets and liabilities and the association’s cash reserves.
The Board will already be dealing with unexpected challenges and focusing on the health and wellbeing of tenants and staff. Whilst this is the key priority it will be important that these response actions are reflected into the necessary decisions that have to be made when reporting on the association’s activities and financial position.
The FRC has confirmed that Companies House may grant extensions to reporting deadlines and this is similarly true of the Charity Commission however the Regulator of Social Housing has not taken steps to echo this flexibility as there are no provisions in the Housing Regeneration Act 2008 to allow this.
Areas of focus
The key areas of focus of this update are as follows:
- Commitments and liabilities
- Asset values/impairment
- Going concern
- Other financial statements disclosures
- Narrative reporting
- Government support
- Gift Aid payments from non-charitable trading subsidiaries.
Key messages
Management and the Board will need to carefully consider the impact of coronavirus on the association’s annual report and financial statements to ensure that these continue to reflect the financial activities and position of the association in accordance with the Housing SORP and The Accounting Direction for Private Registered Providers of Social Housing.
- Assets where the value has suffered an impairment will need to be reviewed and the impairment reflected in the financial statements this is particularly important to consider for properties under construction and properties recognised at market value.
- Associations will need to review debtors and rental arrears to determine if the third parties remain in a position where they will be able to settle the amounts due or whether there is a need to write down the carrying amounts.
- Borrowings need to be considered by the association to ensure that it is not in breach of any related terms and covenants.
- Most organisations, including housing associations, are having to change their working structures in the short term as a necessity. If these prompt a longer-term change in use of resources, then onerous contracts in respect of leasehold properties will need to be assessed.
- Narrative reporting will need to explain the effects of the corona virus on the association and how this impacts on financial position and plans going forward.
- The Annual Report should be balanced and comprehensive to give stakeholders sufficient information to appropriately assess the performance of the association and highlight any uncertainties in estimates and judgements.
- The Board assessment of the association’s financial viability and ability to continue as a going concern is already a key area of emphasis and importance and the Board will need to take particular account of the impacts from the coronavirus outbreak and ensure they have the appropriate disclosures. This may also lead to a modified audit report.
- For each entity in the group Directors will need to consider the ability to continue as a going concern. They should consider support from elsewhere with the group and whether this is still sufficient.
- The government has already implemented a number of business support schemes, some of which will be available to housing associations and / or their trading subsidiaries depending on their circumstances. This is constantly changing and the details of entitlement and how any claims will be settled are still being developed. However, if an association believes that it can benefit from any of these support schemes the Board will need to determine when and how any such benefit should be reported in the financial statements.
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