SEC Reminds Issuers to Include COVID-19 Measures in Disclosures

By:
Chris Gaetano
Published Date:
Jun 24, 2020
The Securities and Exchange Commission (SEC) released supplemental staff guidance reminding companies to include COVID-19-related activities and impacts in their financial disclosures. It noted that operational changes to account for the pandemic such as transitioning to remote work or adjusting a supply chain may have an effect on a company that would be material to an investment or voting decision, and so affected companies should carefully consider their obligations to disclose this information to investors. The same holds for financial measures such as obtaining and utilizing credit facilities or implementing supplier finance programs. In such cases, the SEC said, companies should "provide robust and transparent disclosures about how they are dealing with short- and long-term liquidity and funding risks in the current economic environment, particularly to the extent efforts present new risks or uncertainties to their businesses."

In this regard, the SEC suggested directly considering questions such as whether the firm is at material risk of not meeting covenants in its credit and other agreements, or the extent to which the pandemic has affected overall liquidity positions and outlook. In addition, the SEC noted that companies should also be prepared to discuss any government assistance it received and the degree to which it will impact the firm.

Further, while no company wants to think about this, the SEC said that it should still consider whether, given the current environment,  there is substantial doubt about the company’s ability to meet its obligations as they become due within one year after the issuance of the financial statements. If there is, the SEC said the company also needs to disclose that.

The supplementary guidance was released on the same day as a statement from SEC Chief Accountant Sagar Teotia, which went over many of the points mentioned in the publication, as well as updates to its coordination with standard-setting bodies, and the importance of audit committee members.

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