Change is an undeniable constant, even when it comes to our disclosure preparations. As 2020 progresses, even the most seasoned accountants and financial professionals have to radically rethink strategies for their 10-Ks and 10-Qs. This situation, of course, has risen due to COVID-19. The impact of this pandemic is near-constant, without any signs of abating in the predictable future. This is why the SEC has provided a lifeline to filers in the form of Topic no. 9 from the CF Disclosure Guidance. Topic no. 9 provides the Division of Corporation Finance’s current views regarding disclosure and other securities law obligations with respect to the coronavirus disease 2019 (COVID-19) and consequent business and market disruptions.
As you prepare your next iXBRL report, we present aspects that you should consider.
Assessment of the impact of COVID-19
Disclosure obligations need to be tailored to provide information about the impact of COVID-19 to investors and market participants. The SEC also encourages companies to provide relevant data in their disclosures to allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management. Here are some illustrative examples provided by the SEC of the kind of questions you need to consider with respect to their present and future operations.
- In light of the current circumstances, how do you expect COVID-19 to impact your future operating results and near-and-long-term financial condition?
- How has COVID-19 impacted your capital and financial resources, including your overall liquidity position and outlook?
- How do you expect COVID-19 to affect assets on your balance sheet and your ability to timely account for those assets?
- Have COVID-19-related circumstances such as remote work arrangements adversely affected your ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures?
Addressing these types of questions will help you to provide information about the impact of COVID-19 to investors and market participants through your disclosure.
Use a safe harbor
The SEC understands that the answers to the questions illustrated above will involve forward-looking information that may be based on assumptions and expectations regarding future events. This definitely makes the information sensitive and while it is crucial that companies provide such information to keep investors informed, it can be undertaken by companies using the safe harbors in Section 27A of the Securities Act and Section 21E of the Exchange Act for such information.
Reflection on your report
It’s possible that COVID-19 will have a significant impact on considerations like 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, etc as well as the judgments used to determine such information. You need to make allowances for the same and if necessary, consult with an expert to measure how COVID-19 will affect these assets.
Another major aspect you need to keep in mind is your Business Continuity Plan. The SEC recommends considering the impact of remote work arrangements on operations, financial reporting systems, and internal controls in your disclosure as well. If you have successfully maintained internal control and audit programs remotely and managed certifications, approvals, and sign-offs digitally, make sure you mention that as well.
Bridge the GAAP
The SEC has acknowledged that there may be instances where a GAAP financial measure may not be available at the time of the earnings release of your company. In such cases, it’s okay for you to disclose non-GAAP measures as long as:
You compare non-GAAP measures to preliminary GAAP results that either include the provisional amount(s) based on a reasonable estimate or a range of reasonably estimable GAAP results.
The end goal is to ensure that investors are viewing the company, your results, and the impacts of COVID-19 on the business from the same perspective as your company management. Transparency is key to survival and sustained continuity, now more than ever.
These are certainly not easy times and we could use all the help that we can get right now. We hope to be able to support you with your XBRL/iXBRL and other compliance filings, in any way you want. So if you’re looking for an efficient and sustainable solution to streamline the last mile of your reporting process or an iXBRL solution that will ease your compliance process, we’re here to help.