The SEC staff has issued new guidance regarding companies’ disclosure considerations regarding operations, liquidity and capital resources in light of COVID-19. The guidance, which largely reiterates the same themes as the staff’s prior guidance, encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 “through the eyes of management” and to proactively revise and update disclosures as facts and circumstances change.
The new guidance focuses on three areas:
- Operations, liquidity and capital resources – this part of the guidance focuses on disclosures about the impact of adjustments being made by companies such as teleworking, supply chain and distribution adjustments, suspension of repurchase plans and dividends and changes in response to health and safety guidelines. In particular, the guidance contains a number of “considerations” in the form of questions for companies to consider addressing in their disclosures with respect to financing activities, short- and long-term liquidity risks and alternative funding sources.
- Government assistance – CARES Act – this part of the guidance focuses on disclosure considerations about the impact of government assistance to those companies receiving COVID-19-related loans, tax relief or other benefits, including the impact on related critical accounting estimates and assumptions.
- Ability to continue as a going concern – this part of the guidance focuses on whether the conditions and events surrounding COVID-19 raise substantial doubt about a company’s ability to meet its obligations.
Companies offering securities or preparing disclosure documents such as upcoming quarterly reports should carefully review and apply the new guidance (it’s quite short and clear!) (and of course continue to apply prior SEC guidance to updated changing circumstances).