Hot Topic | April 2020
SEC emphasizes the importance of disclosures during COVID-19
As companies prepare periodic filings and associated earnings releases – and conduct analyst and investor calls – SEC Chairman Jay Clayton and Corp Fin Director Bill Hinman issued a joint public statement offering observations and requests in an effort to facilitate robust disclosures about the current and future effects of COVID-19.
Applicability
- Public companies
Relevant dates
- Effective immediately
Key impacts
Observations and requests emphasized by the Chairman and Director include (not exhaustive):
- Efforts to mitigate the COVID-19 pandemic have caused a significant contraction of the economy, and increased volatility and uncertainty in our capital markets.
- The response strategy must evolve to effectively address the health risks of COVID-19 while also fostering a meaningful, responsible increase in economic activity.
- The execution of a response strategy will require constant coordination among everyone in this highly integrated economy – workers, consumers, businesses, governments, investors.
- Historical financial information may be less relevant, causing quarterly reporting to be out of sync with the usual routine.
- A company’s disclosures should provide as much information as practicable about its current state of affairs and future outlook, including:
- Current operating and financial status, and strategy to assess, plan for and address the effects of COVID-19
- Progress of its response efforts to COVID-19
- Potential impact to operations and financial condition as the efforts to fight COVID-19 progress.
- Examples of expanded discussions include (not exhaustive):
- Income statement and balance sheet effects
- Current liquidity position and expected financial resource needs
- Impact of COVID-19 on operations
- Company efforts and policies to protect the health and well-being of its workforce and customers
- Receipt of financial assistance under the CARES Act or similar COVID-19 programs
- Nature, amounts and effects of financial assistance to the extent it materially affects, or is reasonably likely to have a material effect on, the financial condition or operating results.
- High quality information and transparency is necessary to enhance valuable communication and coordination of public and private sectors across the economy in the fight against COVID-19 – and will foster confidence between parties in countless types of transactions (e.g. between suppliers and manufacturers, between investors and businesses).
- Companies are encouraged to provide robust, forward-looking disclosures – and those that do may avail themselves of the safe-harbor rules for such statements.
- Given the uncertainty in the current business environment, good faith attempts to provide investors and other market participants appropriately framed forward-looking information would not be expected to be second guessed.
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External resources
The importance of disclosure – for investors, markets and our fight against COVID-19