Adjustments to Required Disclosures in Reports in Light of the Coronavirus

Barnea Jaffa Lande & Co.

Several weeks ago, the Israel Securities Authority published a staff position paper on the consequences of the coronavirus crisis for the disclosure and financial reporting included in the 2020 first quarter report. This was prompted by the significant economic impact the coronavirus caused and the understanding that such impact affected a broad sector of reporting corporations in the capital market, operating in different business fields.

In the position paper, the ISA emphasized which disclosures are required in terms of the coronavirus crisis’ impact on reporting corporations. The paper addresses both the 2020 first quarter report and subsequent future reports. Such emphasis primarily concerns the disclosures required in the board of directors’ report under ISA regulations, as well as the disclosures required in the financial reports under the International Financial Reporting Standards.

In terms of the board of directors’ report, the ISA stipulated that the disclosure must be made clearly and in detail, and address the specific circumstances of the reporting corporation and the field in which it operates. This is designed to allow investors to best assess the anticipated consequences of the crisis for the reporting corporation’s business, as the board of directors expects, as well as the plans for coping with such consequences.

Within this, the reporting corporation must include in the board of directors’ report, inter alia, the significant risks and exposures caused by the coronavirus crisis and the ways in which the company is handling them; disclosure of the specific implications of the crisis for the outcomes of the corporation’s activity, including income, costs, and profitability, and the actions taken by the reporting corporation in order to manage such implications; an analysis of the primary operational and quantitative indexes management used to evaluate the crisis’ impact on the performance and operational goals of the reporting corporation; disclosure of the consequences of the crisis on the reporting corporation’s financial state, liquidity, financial strength, the funding sources at its disposal, and its ability to make payments on any debts; etc.

The disclosure of the consequences of the coronavirus crisis on the business of the reporting corporation, as noted, must be made and updated up until close to the publication date of the board of directors’ report. Additionally, it must also address the anticipated future impact of the virus on the business of the reporting corporation and the corporation’s plans to address this impact with a view to the future.

In regard to the financial reports, the ISA stipulated that reporting corporations must also include expanded disclosures on the significant changes that have occurred in the financial and operational states of corporations, due to the coronavirus crisis, in terms of the assumptions that were at the basis of the accounting of such matters, as well as the primary estimates and considerations at their foundation. This includes the requirement that the reporting corporation examine, inter alia, the impact of the coronavirus crisis on the reporting corporation’s expectation of its ability to continue to operate as a live business; events that occurred after the date of the reporting and whether they require coordination; the impact on measuring aspects of assets and obligations in the monetary, financial, and non-financial reports, including measuring the fair value of non-traded assets and the decrease in value of tangible and non-tangible assets; the impact for government grants; the impact for payments to and benefits for employees; the impact on the measurement of delayed taxes; etc.

It is important to note that the ISA recognizes that including disclosures and information in the board of directors’ report and the financial reports on matters that are not within the reporting corporation’s control constitute predicting future-facing information. Therefore, the reporting corporations may make use of the requirements listed in the Securities Law for the purposes of protection from future-facing information.

For a link to the full position paper, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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