In light of the market and business disruptions due to Coronavirus Disease 2019 (“COVID-19”), companies must think critically about how the coronavirus pandemic may impact each aspect of financial reporting, including required disclosures. In this article, we will discuss five steps that companies should take to ensure accurate and transparent disclosures and be in compliance with the Securities and Exchange Commission’s (“SEC”) recent disclosure guidancei and public statements.ii
In consideration of this recent activity, those charged with financial reporting should review the guidance and public statements carefully and consult with their audit and disclosure committees (if applicable) regarding potential impacts to your business. Although the recent guidance is geared towards SEC registrants, the concepts and applications transcend to private companies reporting under U.S. GAAP to their stakeholders (i.e. shareholders, debtors, counterparties and other stakeholders) who require the same level of transparency.
Five Steps Companies Should Take to Prepare Accurate and Transparent Financial Statements and Disclosures
The overarching concept behind some of the SEC’s recent statements is that stakeholders, while still interested in knowing the present status, are more focused than ever on the future operational and financial plans while companies navigate the COVID-19 health crisis. Similarly, boards of directors have a fiduciary duty to act in the best interest of the company and make a good faith effort to be informed and exercise reasonable judgment when making decisions.
Companies must first disclose and quantify, if possible, the financial impact to their current financial statements. Then, companies must disclose their future plans along with a digest of the related risks to the business. The by-product of this assessment, if approached thoroughly, will be accurate and transparent financial statements and disclosures.
Below we list five critical steps companies should take to prepare accurate and transparent financial statements and adhere to the recent disclosure guidance. If you would like to read additional details about each of these steps, click here for a more in-depth discussion.
We are in the midst of uncharted waters with respect to financial reporting and disclosures due to the breadth and scale of the disruptions caused by COVID-19. Companies need to thoroughly assess sensitive estimates and judgments and consider the recent disclosure guidance to prepare accurate and transparent financial statement disclosures. This additional up-front effort may help companies avoid potential negative consequences, such as financial statement restatements, shareholder lawsuits or regulator scrutiny.
DGC is here to assist you in whatever way best meets your needs. We have extensive experience helping clients navigate complex accounting and financial reporting matters during challenging times such as this. DGC continues to monitor the current events and financial reporting guidance impacting this topic. We will provide updates as they develop.
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If you would like to discuss how DGC can advise you on these matters, contact a member of your client service team or Jon Klerowski, CPA, ABV, CFE at 781-937-5729 / email@example.com or Elisabeth da Silva, CPA, CFF at 781-937-5792 / firstname.lastname@example.org. You can also visit our coronavirus web page at dgccpa.com/coronavirus which will be continuously updated with new articles and checklists to help you deal with the impact of the coronavirus on you and your business.
i Division of Corporation Finance, Securities and Exchange Commission, CF Disclosure Guidance: Topic No. 9, Date: March 25, 2020. See: https://www.sec.gov/corpfin/coronavirus-covid-19.
ii “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19,” by Chairman Jay Clayton and William Hinman (Director, Division of Corporation Finance), April 8, 2020. See: https://www.sec.gov/news/public-statement/statement-clayton-hinman.
“Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19,” by Sagar Teotia (Chief Accountant), April 3, 2020. See: