Effect of COVID - 19 to KOSOVOs Economy and Financial Reporting System

2020-04-08 - 12:31

I. Introduction

The COVID-19 pandemic presents not only a significant threat to human health but also a major shock to the European and global economy. Most European countries have taken quarantine and lock-down measures, to prevent a wider spread of the pandemic which could lead to the collapse of national healthcare systems and many deaths. Republic of Kosovo is among the countries that have taken preventative measures in advance.

Before Kosovo had any COVID-19 case, the government decided to close all educational institutions as a preventative measure of spreading of unnoticed COVID-19, among the population. On March 15, 2020, Kosovo’s government declared a public health emergency, following tightened restrictions that effectively placed Kosovo in lockdown.

As the first cases of those infected with COVID-19 were announced, the government took protective measures by: (i) prohibiting public transport within Kosovo as well as organized international transport; (ii) closing the land borders for travellers entering Kosovo (this does not apply to Kosovo citizens); and (iii) prohibiting all air travel at Pristina Airport, except for military or emergency flights. The government put in place a network of medical staff in land borders and airport with the aim to screen the incoming Kosovo residents, and direct those coming from high/medium risk countries to obligatory 14 days quarantine in the dorms of the public University of Pristina, previously evacuated from students.

Even though the number of people infected with corona virus in Kosovo is low[1] compared to other neighboring countries, Government has prohibited operation of wide range of economic activity (all business remain closed, except for grocery shops and pharmacies).

The economic consequences of such measures are major, and are felt through both supply and demand channels. Whilst the initial effects were being felt mostly by the travel industry and education providers, the impact is now considerably wider and is creating significant uncertainty for supply chains and the economy. This uncertainty is creating risks that entities may not have encountered before. Individuals fear losing their jobs and livelihoods and many companies, especially SMEs and micro-businesses, are at risk of going bankrupt, which would of course have a detrimental knock-on effect on jobs.

II. Economic impact of the fiscal emergency package

The governor of Central Bank of Kosovo (CBK) stated that “the COVID-19 pandemic has impacted numerous sectors of Kosovo’s economy, leaving businesses with no revenues, while the liabilities of these businesses remain active, thus risking their solvency and may lead them to the failure and bankruptcy. At the same time, employees of these businesses risk to be left partially or fully without incomes, thus adversely impacting the purchasing power of consumers. Under these circumstances, when the credit demand decreases and future insecurity increases, the decrease in lending from financial institutions is expected as well, thus impacting the reduction of a very important source of funding for consumption and investment. Another important channel of the Kosovo economy shocked by the pandemic crisis may be the foreign sector. Kosovo is highly depended on remittances, receiving an amount of more than 10% of GDP on annual basis.” CBK forecasts, that the Kosovo’s economy will suffer a decline in the range of 2% to 4% during fiscal year 2020.

Up to 80% of businesses in Kosovo fall into the category of SMEs. To mitigate the hardship and comfort the people while defending the economy, the Kosovo Government recently announced an emerging fiscal stimulus package to lessen the risk of a surge in insolvencies through this difficult period.

Some of the measures are listed below:

• Entities that have seen their operations decline as a result of government measures or have been forced to keep their employees at home, the government will assist with payment of monthly salaries of EUR 170 for the next 2 months up to a maximum of 41 million Euro; Subsidizing the rent up to a maximum of 50% for SMEs for the next two months for a total of EUR 12 million;
• Public entities that have financial difficulties due to the public health emergency situation, are entitled to interest-free lending from the Government. The government will allocate EUR 20 million, and the allocated funds carry zero annual interest rate.
• The Government of Kosovo undertakes to pay a monthly assistance of 130 euros for the next 3 months, for employees who lost their jobs during this period. The maximum amount allocated to this measure is EUR 4 million.
• Micro-entities and the self-employers can take loans from Kosovo Special Guarantee Fund (for a maximum period of 24 months, and a maximum of EUR 10,000), whereby. EUR 15 million are allocated for this measure.
• The budget for grants and subsidies to the Ministry of Agriculture has been increased by EUR 5 million.
• The Government of the Republic of Kosovo will provide € 10 million in support of exporters, who will benefit by increasing their export volume.

In light of the spread of COVID-19 across the country, The Central Bank of Kosovo has taken a relief measures aimed at addressing the economic consequences of the outbreak on individuals, households and businesses. Such relief measure includes moratoria on repayment of loans. Those borrowers who are unable to repay the loan installment may apply to the lender to postpone the loan repayment deadline until 30th April 2020.

III. Impact on financial reporting regime

All financial statement preparers and statutory auditors in Kosovo, should consider the impact of Coronavirus (COVID-19), on annual financial reports arising from this major global risk when preparing financial statements.

This pandemic could not have come in any worse time for Kosovo's statutory auditors. The new Law on Accounting, Financial Reporting and Auditing which entered into force at the beginning of 2019 is applicable for the preparation of financial statements and audit report for the fiscal year ended on 31.12.2019. Under the new law, auditors will, for the first time, express an opinion on the Management Report for PIEs and large size entities. Furthermore for the first time, the SMEs with annual turnover of less than EUR 4 million are required to submit to Kosovo Council for Financial Reporting (KCFR) a Review of Annual Financial Statements. Considering the challenges that result from the first time implementation of legal requirements, as well as the temporary lock down of the economy, Accountants and Auditors of Kosovo are being challenged in many dimensions.

Kosovo Government has taken numerous measures to support businesses and the economy. Below are some of the measures taken:

• Postponement of submission to KCFR of financial statements, auditor's report and review reports for two month (new deadline June 30, 2020);
• Postponement of filing and paying taxes for one month, including tax refund requests;
• Temporary VAT payment exemption on imports of wheat and flour, for the production of bread and bread products.
• Deferment for three months of installment payments for property tax.

The coronavirus pandemic keeps raising the stakes of what a global health emergency looks like. The crisis and the measures that government has undertaken to contain it will keep taking a heavy toll on the economy. Unfortunately, the negative consequences deeply impact Kosovo’s SMEs.

Accountant and Auditors, many of whom are small practitioners themselves, are SMEs’ trusted advisors. The SME accountant and auditor can play a huge part on helping SME’s avoid emergency measures that could endanger the business viability.

SCAAK is proactively advocating for members during this time, given the essential role accountants and auditors are playing to support businesses and the community, respond to the unprecedented economic impact of COVID-19.

Given the impact of COVID-19 on the profession and the economy in general, SCAAK has recently also launched a COVID-19 portal[2], through which we will enable the distribution of articles, opinions and other information by our members, federations and international professional organizations.

 

 

[1] www.kosova.health

[2] https://www.scaak.org/Al/informacione-per-covid-19/

 

 

Society of Certified Accountants and Auditors of Kosovo

March/April, 2020

Pristina, Kosovo

www.scaak.org