Publicly traded companies have begun taking advantage of a 45-day extension for filing certain financial reports to the Securities and Exchange Commission (SEC).
As of Monday, 42 public companies had opted to take advantage of the SEC’s regulatory relief, according to Audit Analytics, an independent research and data provider that focuses on public companies. The industries represented range from hospitality, hotel, and casino companies to businesses dealing in energy, manufacturing, and insurance.
“Some companies are enjoying a surge in demand for their products and services, and others are suddenly close to running out of cash unless they can get a government bailout. Loosening disclosure requirements creates an information vacuum for investors at the very moment when more information is essential to making the right investment decision.”
Peter Cohan, Author and Professor of Strategy and Entrepreneurship, Babson College
As part of the relief, companies have to report why they cannot file the required financial disclosures. Companies are reporting ways in which coronavirus-related disruptions are hurting their bottom lines, as well as steps they are taking to reduce spending as disruptions ripple through their supply chains and rattle their customer bases.
The SEC granted the extension March 4 to provide publicly traded companies with 45 extra days to file certain disclosure reports that had been due between March 1 and April 30. The SEC issued the order in response to fallout from the coronavirus, which it says may affect the companies’ abilities to provide accurate and timely information about how the pandemic is affecting their operations.
In a March 20 blog post, Audit Analytics said the first company to take advantage of the SEC’s reporting extension was an energy company whose facility in Wuhan, China—located at the heart of the worldwide coronavirus outbreak—was shuttered for a considerable period. Other companies citing coronavirus disruptions to their businesses were an insurance carrier serving the restaurant industry and a gaming company that provides equipment to casinos.
In other disclosures not related to the extension, “hundreds of companies” have disclosed closures or reduced operations. “The most significantly impacted industries have been retailers, restaurants, and casinos—though the impacts have been far reaching,” the blog post said.
Many companies are also reporting measures that will reduce spending, like “cancelling share buybacks, drawing on credit facilities, reducing dividends, reducing capital expenditures, and some are even reducing executive pay,” the blog post said.
At what point should companies be making coronavirus-related disclosures?
“Disclosures need to be tailored around individual company circumstances,” said Timothy Brown, audit partner at KPMG. “Things are moving really fast. What we see on Monday might be different on Friday. It’s difficult for companies to know because of all the uncertainty that lies ahead.”
And yet, the rules for what disclosures are required haven’t changed, he said. All that has changed is a delay in when those disclosures must be filed.
Peter Cohan, author and professor of strategy and entrepreneurship at Babson College in Wellesley, Mass., said the loosening of financial reporting requirements could hurt investors, because the coronavirus is affecting different companies in different ways.
“Some companies are enjoying a surge in demand for their products and services, and others are suddenly close to running out of cash unless they can get a government bailout,” he said. “Loosening disclosure requirements creates an information vacuum for investors at the very moment when more information is essential to making the right investment decision.”
Cohan said companies should be transparent about their contingency plans, so investors can properly measure the amount of risk they would take by investing.
Several companies have asked the SEC for extensions because their CEO has tested positive for the coronavirus or has gone into quarantine because of possible exposure, Audit Analytics said. Other companies have reported that key employees are either infected or living in quarantine.
Cohan said companies should report coronavirus infections in a timely manner, saying, “Without such disclosure, companies are holding on to market-moving information that they should disclose to investors so they can make informed decisions.”
Coronavirus’ effect unprecedented
Audit Analytics also found the impact of the coronavirus on publicly traded companies is already unprecedented, a mere four months since the first case was reported in China.
The company’s research found 768 instances of the word “coronavirus” or “COVID-19” in SEC filings in 2020, through March 4. By comparison, the H1N1/Swine Flu pandemic of 2009-10 only generated about 350 disclosures by public companies over its entire course of infection.
Part of the reason so many companies have already mentioned coronavirus in disclosures has to do with timing, as the coronavirus-related disruptions hit just as the majority of large companies were compiling information for their annual reports, Audit Analytics said in a March 6 blog post.
But with the coronavirus pandemic spreading quickly through Europe and North America, the hits to public companies’ bottom lines from coronavirus-related disruptions has only just begun.
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