SEC stresses importance of disclosure 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

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.