SEC Issues Updated Guidance on COVID-19 Disclosures to Shareholders, Investing Public

July 7, 2020

The Division of Corporation Finance and the Office of the Chief Accountant of the U.S. Securities and Exchange Commission (SEC) recently issued additional guidance for companies going forward to inform their shareholders and the investing public about the impacts of the COVID-19 pandemic. 

Division of Corporation Finance — Updated CF Disclosure Guidance: Topic No. 9A

As previously discussed, the SEC’s Division of Corporation Finance (the Division) has been active in encouraging high-quality disclosures by public companies with respect to how such companies are responding to the economic exigencies created by the COVID-19 pandemic. On June 23, 2020, the Division provided CF Disclosure Guidance: Topic No. 9A, which supplements the CF Disclosure Guidance: Topic No. 9 released March 25, 2020.

In Topic No. 9A, the Division reiterated that disclosures should be created to “allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management” and noted that companies should regularly re-evaluate and proactively update their disclosures as the facts and circumstances of COVID-19 change. The Division then provided suggestions to public companies on how to disclose the impact of COVID-19 market disruptions on their operations, liquidity and capital resources. In addition, the Division provided disclosure guidance for companies with respect to the short- and long-term impact of obtaining governmental assistance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and potential considerations related to the company’s ability to continue as a going concern.

Operations, Liquidity and Capital Resources

The Division noted that public companies have had to make numerous operational adjustments to respond to the effects (economic and otherwise) of COVID-19, including transitioning their workforces to remote working, dealing with adjustments to supply and distribution chains, and modifying or suspending operations to comply with health guidelines. To the extent these changes or adjustments would be material to an investment or voting decision, the Division stated that companies should carefully consider their obligations to disclose this information to investors.

Furthermore, the Division noted that it is important for companies to provide “robust and transparent disclosures” about their liquidity and financing activities, including obtaining or using credit facilities, accessing credit markets, describing novel terms or structures of financing arrangements, or negotiating or modifying existing customer payment terms. The Division observed that, while some companies are including discussions of these matters in earnings releases, they should also consider including such discussions in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) item in their periodic reports filed with the SEC.

In addition to general remarks about operations, liquidity and capital resources disclosures, the Division noted that companies should consider a broad range of questions as they analyze their specific facts and circumstances and consider their disclosure obligations. Some of the more than 35 questions in the Topic No. 9A guidance include the following:

  • What material operational challenges are being monitored and evaluated by the company’s management and board of directors, including changes related to health and safety policies, return-to-work arrangements and changes impacting the company’s financial condition and short- and long-term liquidity?
  • How is the company’s overall liquidity position and outlook evolving, in light of the revenue and cash flow impacts from COVID-19?
  • Has the company accessed revolving lines of credit or public or private capital markets to meet liquidity needs?
  • Is the company still able to service its debt and other obligations in a timely manner, or has it taken advantage of deferrals, forbearance periods or other concessions?
  • Has the company relied on supply chain financing, structured trade payables or vendor financing to manage cash flow?
  • Has the company assessed the impact that material events that occurred after the end of the reporting period, but before the financial statements were issued, have had or are reasonably likely to have on the company’s liquidity and capital resources? Has it considered whether disclosure of subsequent events in the financial statements and known trends or uncertainties in MD&A is required?


The Division also encouraged companies receiving federal assistance under the CARES Act (such as loans and tax relief) to consider the short- and long-term impact of that assistance on their financial condition, results of operations, liquidity, and capital resources as well as related disclosures and critical accounting estimates and assumptions. The Division provided a list of questions, including the following, for companies to consider in assessing potential disclosure obligations related to assistance received under the CARES Act:

  • How are the company’s financial condition, liquidity and capital resources impacted by a CARES Act loan, and what are the material terms and conditions of the assistance?
  • How is the company’s short- and long-term liquidity impacted by tax relief under the CARES Act?
  • Are there any material accounting estimates or judgments involved in the CARES Act assistance that should be disclosed?

Going Concern

Finally, the Division encouraged management of public companies to consider “whether conditions and events, taken as a whole, raise substantial doubt about the company’s ability to meet its obligations as they become due within one year after the issuance of financial statements.” To the extent there is such substantial doubt (or such substantial doubt is alleviated by management’s plans), the Division noted that appropriate disclosure should be made in the company’s financial statements, and companies should consider the following questions in preparing their MD&A disclosures:

  • Do conditions or events exist that give rise to a substantial doubt about the company’s ability to continue as a going concern, such as defaults under outstanding obligations or forced labor challenges or work stoppages?
  • How does management plan to address these challenges, and have such plans been implemented to date?

Office of the Chief Accountant: A Statement on High-Quality Financial Reporting

Also on June 23, 2020, SEC Chief Accountant Sagar Teotia issued a “Statement on the Continued Importance of High-Quality Financial Reporting for Investors in Light of COVID-19.” The statement noted that the Office of the Chief Accountant (OCA) had already issued one statement regarding the importance of high-quality financial reporting in April 2020, but the impetus for this new statement was to provide additional guidance for public companies that are preparing for their next reporting cycle (for calendar year companies, their second quarter financial reports).

The primary message of the statement was that the OCA remains engaged and committed to high-quality financial reporting, especially in light of the significant impacts of COVID-19. The Chief Accountant emphasized: “This thirst for decision-useful information only increases in times of heightened uncertainty…. If financial information is to be useful to investors, it must be relevant and faithfully represent what it purports to represent.” To that end, the OCA highlighted several aspects of financial reporting that companies should address to provide useful information to investors.

Significant Estimates and Judgments; Reasonable Judgments. First, the OCA statement noted that many companies have been required to make significant judgments and estimates in connection with their accounting and financial reporting, and the OCA has not objected to such judgments that are well-reasoned. The Chief Accountant said this policy will continue, but cautioned companies to ensure that these judgments and estimates are disclosed in a manner that is “understandable and useful to investors” and that the financial reports are consistent with the specific facts and circumstances applicable to the company.

The Importance of Disclosure Controls and Procedures and Internal Control over Financial Reporting. The OCA statement discussed the importance of robust internal controls over financial reporting (ICFR) to ensure high-quality financial reporting. It noted that, while companies may have adapted their financial reporting processes in response to recent exigencies, they should be mindful that any change that materially affects (or is reasonably likely to materially affect) a company’s ICFR must be disclosed in the fiscal quarter in which the change occurred.

Going Concern Issues. The Chief Accountant said management should continue to consider whether facts or circumstances have changed or developed such that a company’s ability to continue as a going concern is put in doubt. The OCA here echoed the guidance of the Division of Corporation Finance in noting that management should describe the nature of any substantial doubt about its ability to continue as a going concern and how it plans to alleviate or respond to such doubt. The OCA noted that, in addition to the company’s disclosing such doubts in the notes to its financial statements, auditors also have a responsibility to identify any conditions or events that might lead to doubt about the company’s ability to continue as a going concern.

Consultation With OCA. As companies continue to address complex financial reporting issues in the second quarter, the OCA said it is available for consultation and encouraged companies, preparers, auditors, standard setters, audit committees, regulators and others to contact the OCA with questions they encounter as a result of COVID-19 or other emerging issues. The OCA reminded all stakeholders that auditor independence is foundational to the credibility of the financial statements and is a responsibility shared among audit committees, management and their auditors.

Engagement With FASB and PCAOB. The OCA’s statement also highlighted recent OCA engagement with various stakeholders in the financial reporting system. For example, the OCA stressed that it had been working with the Financial Accounting Standards Board, the Public Company Accounting Oversight Board and various international standard setters and regulators, all in the interest of promoting disclosure of high-quality financial information to the marketplace.

Role of Audit Committee. Finally, the OCA continued to stress the critical role that companies’ audit committees play in the financial reporting system through their oversight of financial reporting, including ICFR and the external, independent audit process, particularly in these times of rapid change and increased uncertainty. The OCA stressed that it will continue to proactively engage with audit committee members and welcomed continued feedback directly from audit committee members and related organizations.

Next Steps

With the March guidance and this updated June Topic 9A guidance from the Division of Corporation Finance and the OCA’s statement, companies now have a long list of questions and issues to consider as they prepare upcoming quarterly financial reports. These questions are designed to encourage companies to think about appropriate disclosures of current steps taken and forward-looking assessment of likely future impacts that the pandemic may have on corporate operations.

The Division is focused on encouraging companies to provide forward-looking information about their plans and prospects. This focus is consistent with past statements of SEC leaders, including the joint public statement by SEC Chairman Jay Clayton and Division of Corporation Finance Director William Hinman, as discussed in McGuireWoods’ April 17 client alert, that “the exchange of forward-looking information is essential.” Any forward-looking disclosures should be accompanied by meaningful cautionary language that identifies important factors that could cause actual results to differ materially from those in the forward-looking statements.

The SEC’s focus on encouraging robust and transparent disclosures signals that the SEC will take a careful look at how and what companies are disclosing in the best interest of investors. Although Chairman Clayton and Director Hinman have noted that they did not expect the SEC to second guess good faith attempts to provide appropriately framed forward-looking information to investors, companies should take great care to ensure that the information they are disclosing is accurate, as intentionally misleading statements and/or omissions in public reports could nevertheless become the focus of enforcement action.

Public companies’ disclosure teams should review and consider the list of questions in the Division’s Topic No. 9A guidance and make appropriate disclosures in the upcoming quarter’s disclosures, including in the MD&A, risk factors, forward-looking statements, subsequent event footnote, critical accounting policies and estimates, impairments, ICFR report, earnings guidance, investor scripts and presentations, and earnings press releases. As noted in the March 25 Topic 9 guidance, companies and their auditors may need to allow extra time for their quarterly processes to address novel questions and engage experts and should be careful to follow Item 10 of Regulation S-K and Regulation G with respect to the presentation of non-GAAP financial measures, including those addressing COVID-19-related adjustments. Consultation with the OCA should be considered for emerging issues or complex questions. Since financial results are more difficult to predict given pandemic uncertainties, it is important to be keep forward-looking and other material, non-public information closely held to avoid potential insider trading concerns.

For additional guidance on the information in this alert, please contact any of the authors below, any member of McGuireWoods’ securities compliance or securities enforcement teams or your primary McGuireWoods contact.

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