SEC provides new coronavirus disclosure guidance

The SEC said it’s “providing this guidance as companies prepare disclosure documents during this uncertain time. The Commission and the staff have also provided targeted regulatory relief where appropriate, in light of evolving circumstances.”

Several existing rules or regulations require disclosure about the known or reasonably likely effects of and the types of risks presented by COVID-19, the SEC noted. “As a result, disclosure of these risks and COVID-19-related effects may be necessary or appropriate in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements,” the agency stated.

Regarding disclosures about the risks and impact of COVID-19, including how the company and management are responding to them, “should be specific to a company’s situation,” the SEC said.

The agency additionally provided a non-comprehensive, illustrative list of dozens of questions to consider, a few of which are listed here:

• How has COVID-19 impacted your financial condition and operating results? How do you expect COVID-19 to impact your future operating results and near-and-long-term financial condition?
• How has COVID-19 impacted your capital and financial resources, including your overall liquidity position and outlook?
• How do you expect COVID-19 to affect assets on your balance sheet and your ability to timely account for those assets?
• Do you anticipate any material impairments (e.g., with respect to goodwill, intangible assets, long-lived assets, right of use assets, investment securities), increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on your financial statements?
• Have COVID-19-related circumstances such as remote work arrangements adversely affected your ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures? If so, what material changes in your internal controls have occurred?
• Have you experienced challenges in implementing business continuity plans or do you foresee requiring material expenditures to do so?
• Do you expect COVID-19 to materially affect the demand for your products or services?
• Do you anticipate a material adverse impact of COVID-19 on your supply chain or the methods used to distribute your products or services, with impact on cost and revenue?
• Will your operations be materially impacted by any constraints or other impacts on your human capital resources and productivity?
• Are travel restrictions and border closures expected to have a material impact on your ability to operate and achieve your business goals?

The SEC said it encourages disclosure that is “tailored and provides material information about the impact of COVID-19 to investors and market participants. We also encourage companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management, and that companies proactively revise and update disclosures as facts and circumstances change.”

Reporting earnings and financial results

The SEC is also encouraging companies to “proactively address financial reporting matters earlier than usual. For example, to the extent a company or its auditors will need to consult with experts to determine how the evolving COVID-19 situation may impact its assets—including impairment of goodwill or other assets—it should consider engaging with those experts promptly so that its reporting remains as timely as possible, as well as complete and accurate.”

The agency also reminds companies of their obligations under Item 10 of Regulation S-K and Regulation G concerning the presentation of non-GAAP financial measures, as well as the Commission’s guidance concerning performance metrics disclosure. “To the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations,” the SEC said.

In the guidance, the SEC also acknowledged that “there may be instances where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete.” In such cases, the SEC cites examples of how companies can provide reasonable estimates.