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SEC’s Division of Corporation Finance Provides Coronavirus (COVID-19) Disclosure Guidance

As part of its coronavirus disease 2019 (COVID-19) response,1 the staff of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance (the “Division”) published CF Disclosure Guidance:  Topic No. 9 (the “Guidance”), which summarizes disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions.2  The Guidance:

  • highlights questions companies should consider when assessing disclosure of COVID-19-related effects;

  • reminds companies that circumstances and actions taken in response to COVID-19 could constitute material non-public information for purposes of analyzing trades by insiders; and

  • addresses the reporting of earnings and financial results.

Coronavirus Disclosures

The Division notes that disclosure of the effects or potential effects of, risks related to, and responses or proposed responses to COVID-19 may be necessary or appropriate in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements.  The Division highlights that a company’s COVID-19-related disclosure should be tailored to the company’s specific situation.  Questions to consider in preparing disclosure include, but are not limited to:

  • How has COVID-19 impacted, and how is it expected to impact, the company’s financial condition and results of operations?

  • How has COVID-19 impacted, and how is it reasonably expected to impact, the company’s capital and financial resources, including the company’s overall liquidity position and outlook?  Will the company’s ability to access liquidity through credit facilities be impacted?  If a material liquidity deficiency has been identified, what course of action has the company taken or proposed to take to remedy the deficiency?  Does the company expect to incur any material COVID-19-related contingencies?

  • Does the company anticipate any material impairments, increases in allowances for credit losses, restructuring charges, or other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on the company’s financial statements?

  • Is subsequent events disclosure warranted, particularly if the company is relying on extended filing deadlines?

  • Have COVID-19-related circumstances affected the company’s ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures?

  • Has the company experienced challenges in implementing its business continuity plans, or does it foresee requiring material expenditures to do so? 

  • Does the company expect COVID-19 to materially affect the demand for its products or services?

  • Does the company expect a material adverse impact of COVID-19 on its supply chain or the methods used to distribute the company’s products or services?  

  • Does the company expect the anticipated impact of COVID-19 to materially change the relationship between costs and revenues?

  • Will the company’s operations be materially impacted by any constraints or other impacts on its human capital resources and productivity?

  • Are travel restrictions and border closures expected to have a material impact on the company’s ability to operate and achieve its business goals?

The Division encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management and to proactively revise and update disclosures as facts and circumstances change.

Insider Trading

The Guidance reminds companies and insiders that information about how COVID-19 has affected or could affect a company, COVID-19 related risks, and the company’s responses or planned responses, if not disclosed, could constitute material non-public information.

Reporting Earnings and Financial Results

The Division recognizes that COVID-19 may make it difficult for companies and their auditors to complete the work required to maintain timely SEC filings and encourages companies to proactively address financial reporting matters, including consulting with auditors, counsel and other experts to determine the potential impact on financial statements.

The Guidance also reminds companies about the rules regarding disclosure of non-GAAP measures,3 but provides some relief when GAAP financial measures are not available at the time of an earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete.  In that circumstance, the Division will not object to a company reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results.  A company should limit the presentation of these measures to those non-GAAP financial measures it uses to report financial results to its board of directors to analyze the current and potential impact of COVID-19, not for the sole purpose of presenting a more favorable view of the company.  When a company does reconcile non-GAAP measures to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the particular GAAP accounting is incomplete and what additional information or analysis may be needed to complete the accounting.  The Division discourages the use of non-GAAP measures solely for the purpose of disclosing results adjusted to eliminate the impact of COVID-19.

Next Steps

Companies should continue to monitor any additional guidance that the SEC or its staff may provide as the COVID-19 situation continues to evolve, and the impact, and potential impact, of COVID-19 on their business, financial condition, and results of operations.  Most importantly, companies should begin working with auditors and counsel on upcoming periodic reports earlier than usual, and be prepared to make significant revisions throughout the drafting process, in order to ensure accurate disclosure and prevent delays in meeting SEC reporting deadlines. 


1 See “SEC Coronavirus (COVID-19) Response”, available at https://www.sec.gov/sec-coronavirus-covid-19-response
2 See “Coronavirus (COVID-19)”, CF Disclosure Guidance: Topic No. 9 (Mar. 25, 2020), available at https://www.sec.gov/corpfin/coronavirus-covid-19.
3 See Item 10(e) of Regulation S-K and Regulation G.  See also Division of Corporation Finance Non-GAAP Financial Measures Compliance and Disclosure Interpretations, available at https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm; “Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of Operations,” SEC Release No. 33-10751 (Jan. 30, 2020), available at https://www.sec.gov/rules/interp/2020/33-10751.pdf

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About this Author

Adam P. Wheeler, Womble Carlyle Law Firm, Securities Attorney
Partner

Adam Wheeler is an experienced corporate and securities attorney who advises financial institutions and their holding companies, investment banking firms, investment advisors and broker-dealers as well as industrial companies in public and private securities offerings, recapitalizations, mergers, acquisitions and other complex corporate transactions.

In addition, he counsels clients on corporate governance matters and federal and state securities law matters, including Sarbanes-Oxley, SEC, NYSE and NASDAQ rules. Adam has extensive experience...

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