The coronavirus pandemic has presented new challenges to virtually every company and individual in every discipline in the current economy.

Employee stock ownership plans (ESOPs) and their plan sponsors — as well as auditors of the plans — certainly will have new issues to consider as a result of the pandemic.

Today most ESOP companies are S corporations largely driven by unique tax attributes in high-percentage stock ownership applications. Most of those firms have a calendar year end for financial and tax reporting.

From a GAAP reporting standpoint, the COVID-19 pandemic represents a “non-recognized subsequent event” for entities with Dec. 31, 2019, calendar year ends as the pandemic is widely viewed as occurring after the date of the financial statements. Although recognition in the financial statements is not required, subsequent event disclosures may be required.

Entities with year ends after December 2019 will have pandemic-related events that may require an adjustment to the financial statement or additional disclosures. Due to subsequent reactions by many states with stay-at-home orders among several other restrictions, the economic impact on many industries and companies is substantial and often negative.

Craig Olinger, managing partner in the valuation firm ESI Equity, observes that in the early months of 2020, COVID-19 issues in ESOPs have ranged from minor material effects in many circumstances to less onerous challenges. He noted the reason for this is that many ESOP companies are business-to-business entities and have been open during COVID-19. Unfortunately, as the year progresses, there will be additional ESOP companies in more stressed circumstances such as those in the hospitality industry or narrowly focused nondiversified contractors with suspended projects.

Read the rest of Scott Miller’s article here at the Journal of Accountancy