Shearman & Sterling LLP

As part of its response to the effects and economic disruption that the novel coronavirus disease 2019 (“COVID-19”) is causing to the worldwide economy, on March 25, 2020, the Division of Corporation Finance of the U.S. Securities and Exchange Commission (“SEC”) issued additional guidance regarding public company disclosure requirements with respect to COVID-19.[1]

This client alert supplements and updates our client alert issued on March 16, 2020, which discusses disclosure and capital markets considerations for U.S. listed public companies.[2]

COVID-19 Disclosure Considerations

The guidance reminds companies that, while it is difficult to predict with precision the effects of COVID-19 on a company, management’s views on COVID-19’s effects and future impact on the company can be material to investment and voting decisions.

The guidance notes that the existing disclosure framework for MD&A, business and operations disclosures, risk factors, legal proceedings, disclosure controls and procedures, internal controls over financial reporting and financial statements all may require consideration of COVID-19 impacts. In addition, the guidance states that it may be appropriate to provide additional disclosure on COVID-19’s effects even when there is no specific line-item requirement in the current disclosure framework.

The guidance recognizes that the pandemic is rapidly evolving and that COVID-19-related disclosures will need to be tailored to the company, but outlines certain considerations that companies should take into account in crafting disclosure, including the following:

  • Impact on financial condition and results of operations, including future operating results and near- and long-term financial condition.
  • Impact on capital and financial resources, including overall liquidity position and outlook, cost of or access to capital and funding sources (such as revolving credit facilities), sources or uses of cash, ongoing ability to meet debt covenants and actions taken to remedy any deficiency.
  • Effects on assets on the balance sheet and timely accounting for those assets, including significant changes in judgments in determining fair values.
  • Any anticipated material impairments (e.g., with respect to goodwill, intangible assets, long-lived assets, right of use assets, investment securities), increases in allowances for credit losses, restructuring charges, other expenses or changes in accounting judgments.
  • Impact of remote work arrangements on operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures and anticipated challenges in this area.
  • Challenges in implementing business continuity plans and related expenditures and resource constraints.
  • Impact on demand for products or services, supply chain or distribution and changes in the relationship between costs and revenues (margins), human capital resources and productivity, travel restrictions and border closures.

Updating Prior Disclosure

The guidance encourages companies to proactively revise and update disclosures as facts and circumstances change. Depending on the particular circumstances, updating prior disclosure that has become inaccurate may also be required.

Trading Windows

Where a company has become aware of a material effect or risk associated with COVID-19, the company, its directors and officers, and other corporate insiders should be restricted from trading in the company’s securities until the information is disclosed to the public.

No Selective Disclosure

Disclosure of COVID-19-related information must be broadly disseminated and selective disclosure must be avoided.

Allowing Extra Time for the Preparation of Financial Statements

The impact of COVID-19 on businesses may present a number of novel or complex accounting issues that, depending on the particular facts and circumstances, may take time to resolve for the company and its auditors. For this reason, the SEC staff encourages companies to proactively address financial reporting matters and engage with experts earlier than usual in the reporting cycle.

Non-GAAP Financial Measures

To the extent a company presents a non-GAAP financial measure to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure useful and how it helps investors assess the impact of COVID-19. The SEC staff highlights several considerations in that regard:

  • When a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that are not yet final, companies can reconcile non-GAAP measures to preliminary GAAP results that either include any provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results. Any provisional GAAP amount or range should reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges.
  • A reminder that any non-GAAP financial measure should not be disclosed more prominently than the most directly comparable GAAP financial measure or range of GAAP financial measures.
  • If a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors.
  • If a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting.

The presentation of non-GAAP measures related to COVID-19, or changes to existing measures, may require additional disclosures to enable consistency and comparability across periods.


The SEC’s latest guidance recognizes that COVID-19 has impacted, and will continue to impact, many aspects of a company’s operations. It is important for companies to not consider COVID-19 disclosures as a one-time event. The SEC clearly expects companies to review and revise COVID-19-related disclosures as the crisis changes over time and to reflect the changing impact on the company. As a result, a company’s disclosure committee and others responsible for disclosure and financial reporting should recognize that their mandate includes consideration of disclosure obligations related to COVID-19. To carry out this responsibility, the disclosure committee should stay informed about COVID-19 developments generally and ensure it has access to information related to a company’s response to the crisis and how the specific impact on the company is developing as the crisis extends. An important takeaway from this guidance is that the staff of the Division of Corporation Finance will be reviewing the timing, quality and transparency of a company’s disclosures related to the impact of COVID-19. At some point in the future, we would expect the Division of Corporation Finance to issue comments on these disclosures.


[1] See SEC Division of Corporation Finance Disclosure Guidance (March 25, 2020)
[2] See Client Alert (March 16, 2020)

Special thanks to Polina Pristupa for her contribution to this publication.

[View source.]