SEC Disclosure Guidance Amid the Unprecedented and Rapidly Changing Financial Landscape Due to COVID-19

Footnotes for this article are available at the end of this page.

The novel coronavirus (COVID-19) pandemic has significantly disrupted businesses and markets, including securities markets. The pandemic’s emerging impact on the operations of public companies has prompted the Division of Corporation Finance (“Division”) of the U.S. Securities and Exchange Commission (“SEC”) to issue “CF Disclosure Guidance: Topic No. 9”1 (“Guidance”), which sets out the Division’s views on what a registered company must disclose. The Division needs to see management’s discussion and analysis of: (1) what impact the pandemic is now having and is expected to have on the Company’s business; (2) how management is responding to emerging events; and (3) how management is planning for COVID-19-related uncertainties. Managers should address and report what they expect the long-term impact of the pandemic on the consumer demand for their Company’s products, the Company’s financial strength and stability, and the Company’s capital value. Given the uncertainty concerning the longevity or resurgence of the pandemic and its present and future impact on the economy, the Division encourages managers to reach out to Agency staff with questions and requests for relief concerning their Company’s particular reporting questions or obligations.

Breaking Down the Guidance

The Guidance specifies how companies should assess and communicate COVID-19 risks, encouraging firms to be proactive and to revise their filings accordingly.

Assessing and Disclosing the Emerging Impact of COVID-19

The Division encourages a Company to discuss risks that COVID-19 poses to the market for its securities. A Company is encouraged to use the safe harbors that Section 27A of the Securities Act and Section 21E of the Exchange Act offer management in providing prospective information. The Division suggests that Company’s management specifically discuss the present and future impact of the COVID-19 pandemic on: (1) the Company’s financial condition and operations; (2) the Company’s capital and financial resources, including the Company’s overall liquidity position and outlook; (3) the Company’s asset values; (4) the Company’s financial statements; (5) the Company’s operations in terms of employees’ remote-working arrangements, including financial reporting systems, internal controls over financial reporting and disclosure procedures; (6) the Company’s continuity plans; (7) the demand for the Company’s products or services; (8) the Company’s supply chain or the methods used to distribute products or services; (9) the constraints or other impacts on the company’s human capital resources and productivity; and (10) the impact of travel restrictions and border closures.

Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

The Guidance emphasizes the Company’s and its related persons of their continuing obligations under federal securities laws with a special on the risk of insider trading that the COVID-19 environment has created. The Division directs the Company (including its officers and directors and other corporate insiders) to refrain from trading in the company’s securities with material non-public information (“MNPI”) arising from a virus-caused situation until such information becomes public information. The Company is also urged to take necessary steps to avoid selective disclosures of MNPI in violation of Regulation FD, 17 C.F.R. § 243.  To that end, the Company should consider revisiting or updating previous disclosures if information becomes materially inaccurate.

Reporting Earnings and Financial Results

Given the potential for delays and roadblocks to preparing timely filings, the Guidance suggests that the Company attend to financial reporting on an accelerated basis. For example, the Company can engage an expert promptly to assist in deciding if the Company or its auditor need expertise to determine the quantitative impact of COVID-19 on assets, including possibly impaired goodwill.

The Guidance also provides detailed directives as to the reporting of non-GAAP measures in response to COVID-19-related matters, noting that all prior Division guidance concerning Item 10 of Regulation S-K and Regulation G remain in effect. When a virus-created situation makes a GAAP financial measure not available, the Company should explain why management believes the non-GAAP measure to be useful to investors. Significantly, the Division will not object to the Company’s reconciliation of a non-GAAP measure to a preliminary GAAP result that includes provisional amounts based on a reasonable estimate, or a range of reasonably estimable GAAP results. For filings in which GAAP is required, including Forms 10-Q and 10-K, companies should not, however, use provisional or estimated figures in reconciliations.  The Division reminds managers that the Company must, as always, display a non-GAAP measure more prominently than the comparable GAAP measure.

Additional Guidance

The Guidance ends by acknowledging the current challenges, many of which are novel and still unknown, that the Company may encounter in this crisis. If necessary, the Division will likely issue additional guidance, and it encourages each Company to be proactive in asking questions and making requests for relief. The Division emphasizes that complying with the Company’s reporting requirements should not compromise the health and safety of employees and others.

Putting the Guidance in Context

In issuing this Guidance, the Division has urged public companies to make detailed analyses and disclosures about business risks that the COVID-19 pandemic poses, and it offers an inclusive and illustrative (rather than exhaustive) set of questions to be addressed concerning how COVID-19 and its effects has impacted and may impact the Company and its shareholders.

In March 2020, the SEC issued an order giving qualified public companies a 45-day extension to file certain disclosure reports otherwise due between March 1 and July 1, 2020. To qualify for the extension, the Company must submit a current report on Form 8-K or Form 6-K by the original filing deadline for the delayed report that explains why the extension is needed. Similarly, other SEC orders give qualified investment companies and advisors additional time to hold in-person board meetings and meet certain filing and delivery requirements that otherwise must be performed between March 13, 2020, and June 30, 2020. To qualify for this relief, the Company must notify the SEC staff and investors of its intent to rely on the extensions but do not need to explain why.

The relaxation of these filing deadlines dovetails with the SEC’s general acknowledgement of the unique challenges that COVID-19 poses to companies seeking to maintain business operations. This is particularly so with the Company that cannot furnish GAAP financial measures. The Company would be well served to remain in contact with the Division staff and SEC staff generally, particularly when seeking answers to questions that invariably emerge during this time.


[1] The Guidance is that of the Division: it is not a rule, regulation or statement of the SEC, which has neither approved nor disapproved its content. As with all staff guidance, it has no legal force or effect, does not alter or amend applicable law, and does not create new or additional obligations for any person.