SEC Sets Course on COVID-19 Disclosure

Written by Blake Baron


On March 25, 2020, the SEC’s Division of Corporation Finance provided disclosure guidance to public companies to assist in the evaluation of a company’s disclosure obligations with respect to the COVID-19 (novel coronavirus) pandemic and related business and market disruptions.

While it may be difficult for companies to assess or predict the exact impact of COVID-19 on individual companies or entire industries, the SEC explained that a company may have obligations to disclose certain risks and effects to the extent material to investment and voting decisions. Such risks and effects include the impact of COVID-19 on the current state of a company’s operations, management expectations regarding its future effects, a company’s response to the evolving pandemic and operational plans to address such uncertainties. The SEC noted that disclosure of these risks and COVID-19-related effects may be necessary or appropriate in various sections of SEC filings, including, but not limited to, management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and a company’s financial statements.

COVID-19 Disclosure – What To Consider?

The SEC provided a non-exhaustive list of questions for companies to consider when assessing COVID-19-related disclosures, including, but not limited to, the following:

  • How has COVID-19 impacted your financial condition and results of operations and 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?
  • Have you experienced challenges in implementing your business continuity plans or do you foresee requiring material expenditures to do so? Do you face any material resource constraints in implementing these plans?
  • 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?
  • 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?

Disclosure Requirements in Connection with Market Transactions, Earnings Results and Financial Estimates

As a general concept, a company or person cannot trade on material non-public information. Accordingly, such material information would need to be widely disseminated and absorbed by the market before a person could engage in a transaction. As a result, companies and related parties will need to consider whether any COVID-19 risks and effects require disclosure before a transaction in a company’s securities is affected to ensure compliance with the securities laws. These disclosures can be conveyed in a company’s periodic or current reports or may be included in earnings releases that address historical and prospective results.

Our Thoughts

The ongoing COVID-19 pandemic continues to evolve across all different sectors and geographic regions, which reinforces the importance for every public company to continue to evaluate its impact on current and future operations. The questions provided by the SEC are a helpful starting point; however, each company needs to assess based on its own unique position. Please contact the MSK Corporate & Business Transactions Department to discuss how we can help you evaluate the impact of COVID-19 on your operations and comply with SEC disclosure obligations.

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