In a Statement (available here) on April 8, 2020, SEC Chairman Jay Clayton and Corporation Finance Division Director Bill Hinman supplemented earlier SEC guidance (discussed here) to emphasize the importance of disclosures by public companies about the effects of the COVID-19 pandemic on their operations, financial condition and liquidity and their plans for handling those effects.
The Statement focuses primarily on informal communications through earnings releases and analyst calls, especially those coming up related to the first quarter just ended. The guidance also will be relevant for the preparation of the MD&A, including in the next Form 10-Q. It emphasizes the importance of forward-looking disclosures during these challenging and evolving times, noting that historical information may be relatively less significant because of the dramatic changes that have taken place making that information less predictive of future results. The Statement seeks to encourage these forward-looking disclosures by noting that good faith efforts to provide appropriately framed forward-looking information, in view of all the uncertainties, are unlikely to be second guessed by the SEC. In addition, it encourages companies to use the safe-harbors for forward-looking statements to mitigate legal risk and thus make companies more comfortable providing that information.
A few specific points from the Statement worth noting:
- If companies are seeking or receiving financial assistance under the various federal and state programs designed to provide economic assistance, companies should disclose the nature, amounts and effects of such assistance to the extent material.
- Companies and their advisers should use reasonable efforts to convey meaningful information – that is, information that provides insights to investors about the key operational and financial considerations and challenges a company faces as seen through the eyes of the company’s management, including the strategies being employed by the company to deal with the crisis.
- The Statement notes the importance of updating and refining forward-looking information disclosures as circumstances and estimates change and become clearer.
The overall message of the Statement is that during these extraordinary times disclosures to investors cannot be business as usual. Companies should look at disclosures through a fresh lens, being realistic about current circumstances and focusing on what can be expected going forward as best as it can be foreseen. Disclosures should be tailored to the particular circumstances of the company and the challenges it faces, being mindful of what management is focused on, what has been communicated to the board and its committees and what they collectively see as most important.
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