The Securities and Exchange Commission’s (SEC) Division of Corporation Finance (the Division) issued on March 25, 2020, guidance regarding disclosure considerations, trading on material inside information and reporting financial results with respect to COVID-19. The guidance encourages timely reporting while recognizing difficulties that may arise from the broad effects of COVID-19 on industries and companies. The SEC notes that its disclosure requirements can apply to evolving business risks even in the absence of a specific line item requirement that names the particular risk presented. In addition, a number of existing rules or regulations require disclosure about the known or reasonably likely effects of and the types of risks presented by COVID-19. Consequently, disclosure of these risks and COVID-19-related effects may be necessary or appropriate in MD&A, business sections, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and financial statements.
The Division provides a list of potential COVID-19-related disclosures for companies to consider with respect to their financial condition and results of operations, capital and financial resources, balance sheet assets and the ability to timely account for those assets, material impairments, remote work arrangements, business continuity plans, demand for products and services, and travel restrictions and border closures:
- COVID-19 impact on financial condition and results of operations
- Expected COVID-19 impact on future operating results and near- and long-term financial condition in light of changing trends and the overall economic outlook
- Whether COVID-19 is expected to impact future operations differently from how it affected the current period
- COVID-19 impact on capital and financial resources, including overall liquidity position and outlook
- Changes to cost of or access to capital and funding sources, such as revolving credit facilities or other sources, and any changes that are reasonably likely to occur
- Other material impacts on sources or uses of cash
- Material uncertainty about ongoing ability to meet covenants under credit agreements
- If a material liquidity deficiency has been identified, any course of action taken or proposed to remedy the deficiency
- Known trends and uncertainties as they relate to companies’ ability to service debt or other financial obligations; access the debt markets, including commercial paper or other short-term financing arrangements; maturity mismatches between borrowing sources and the assets funded by those sources; changes in terms requested by counterparties; changes in the valuation of collateral; and counterparty or customer risk
- Material COVID-19-related contingencies
- Expected COVID-19 effects on balance sheet assets and ability to timely account for those assets, including any significant changes in judgments in determining the fair value of assets measured in accordance with U.S. GAAP or IFRS
- 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 financial statements
- Adverse effects of COVID-19-related circumstances such as remote work arrangements on companies’ ability to maintain operations, including financial reporting systems; internal control over financial reporting and disclosure controls and procedures, including changes in controls that have occurred during the current period that materially affect or are reasonably likely to materially affect internal control over financial reporting; and any anticipated challenges in companies’ ability to maintain these systems and controls
- Challenges in implementing business continuity plans and any related material expenditures or resource constraints in implementing these plans
- Material effect of COVID-19 on demand for products or services
- Anticipated material adverse impact of COVID-19 on supply chain or methods used to distribute products or services
- Anticipated material impact of COVID-19 on the relationship between costs and revenues
- Material impact of any constraints on operations or other impacts on human capital resources and productivity
- Material impact of travel restrictions and border closures on operations and business goals
With respect to GAAP financial measures that are not available at the time of an earnings release due to incomplete COVID-19-related adjustments, the Division stated that it would not object to companies reconciling non-GAAP financial measures to preliminary GAAP results that include either provisional amounts based on a reasonable estimate or a range of reasonably estimable GAAP results.
The guidance cautions against selective disclosures and insider trading prior to the dissemination of material nonpublic information. The Division also urges companies to consider whether they need to revisit, refresh or update previous disclosures to the extent that the information becomes materially inaccurate.
Disclosure Guidance Topic No. 9 is available here.