As previously reported, the SEC is actively responding to the new wave of issues presented by the coronavirus (COVID-19). However, as early as January 30, 2020, SEC Chairman Jay Clayton issued a statement identifying coronavirus as a potential concern.
Chairman Clayton’s statement advised that he had instructed the staff to monitor and provide guidance to issuers regarding coronavirus-related disclosures. Chairman Clayton highlighted the effect of coronavirus as “an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of issuers.”
Fast-forwarding nearly two months, the impact of coronavirus is more significant than many imagined, and the current situation will likely cause companies across the country to examine reporting obligations.
Following the Chairman’s January 2020 statement, the SEC issued a joint statement in February 2020 from SEC Division of Corporation Finance Director Bill Hinman, SEC Chief Accountant Sagar Teotia, PCAOB Chairman William D. Duhnke III, and Chairman Clayton which outlined reporting considerations related to coronavirus.
In the joint statement, the leaders emphasized: “[H]ow issuers plan and respond to the events as they unfold can be material to an investment decision, and we urge issuers to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.” The leaders stressed “the need to consider potential disclosure of subsequent events in the notes to the financial statements in accordance with guidance included in Accounting Standards Codification 855, Subsequent Events[.]” The statement also conveyed the message that the SEC wants to help issuers, including granting relief from deadlines as appropriate and providing guidance to issuers regarding reporting.
In a press release released in March, companies were reminded “to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.” The Commission further outlined disclosure considerations:
Disclosure Considerations for All Companies
The Commission encourages all companies and other related persons to consider their activities in light of their disclosure obligations under the federal securities laws. For example, where a company has become aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and to take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.
When companies do disclose material information related to the impacts of the coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.
Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for this information.
Please contact a Jackson Lewis attorney for assistance examining your organization’s reporting obligations related to coronavirus.