The Importance of High-Quality Disclosure and Financial Reporting

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Companies, investors, analysts and regulators are all closely monitoring the financial issues raised by COVID-19, specifically as they relate to the reporting of financial results and information by public companies. Most public companies are currently evaluating financial results for the quarter ended March 31st with the goal of filing Form 10-Q’s and related earnings releases in the near term. Producing comprehensive financial and operational reports (including forward-looking information), may present challenges for companies in the current circumstances. This quarter, earnings releases and analyst calls will not be routine and historical information may be relatively less significant to stakeholders than forward-looking information.

In response, the SEC has issued various statements and guidance to public companies with the goal of continuing to provide high quality financial information that investors and capital markets can rely on.

The following is a brief summary of certain statements issued:

On April 8th, SEC Chair Jay Clayton and Corp Fin Director Bill Hinman issued a statement on The Importance of Disclosure – For Investors, Markets and Our Fight Against Covid-19 . Some of the critical themes related to disclosure included:

  • Investors and Analysts are Thirsting for Information – Company disclosures should reflect:  (1) where the company stands today, operationally and financially, (2) how the company’s COVID-19 response and strategy, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as efforts related to COVID-19 progresses (e.g. changes in expected capital expenditures, changes in supplier and production capabilities).
  • Provide as Much Information as is Practicable – Information regarding future operating and financial conditions (including liquidity) and resource needs are important and helpful. This will be challenging as strategies are evolving (and are likely to change), but it is important on many levels.  Companies may be receiving financial assistance under the CARES Act or other similar COVID-19 related federal and state programs. If these or other types of financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance. Updating and refining these estimates and disclosures will be necessary.
  • Producing Forward-Looking Disclosures Can be Challenging But is Important –High quality disclosure and transparency can foster confidence in all market participants, for example, between a supplier and a manufacturer as well as between an investor and a company, which in combination will benefit all.  Companies should strive to provide, and update and supplement, forward-looking information driven by three primary considerations:  (1) the information will benefit investors, (2) market digestion of the information will benefit the company, and (3) the broad dissemination and exchange of company-specific plans for addressing the effects of COVID-19 under various scenarios will substantially contribute to a heightened level of confidence and understanding which reduces risk aversion and facilitates action.

In preparing these disclosures and providing forward-looking information, the SEC reminds companies to avail themselves of the safe-harbors for forward-looking statements, and it expects that, in many cases, actual financial and operations results may differ substantially from what would currently be considered reasonable estimates and would not expect to second guess good faith attempts to provide investors and other market participants appropriately framed forward-looking information.

On April 3rd, the SEC issued a statement on The Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 . The statement addresses several topics for preparers, auditors and other stakeholders involved in the financial reporting by companies. The overall message is that the proper functioning of capital markets depends on a regular supply of high-quality financial information that enables investors, lenders, and other stakeholders to make informed decisions.

Specifically, the Office of the Chief Accountant (OCA) remains actively engaged with the Financial Accounting Standards Board (FASB) and supports their efforts to address the impacts and emerging issues of COVID-19.

The OCA recognizes that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates.  Certain judgments and estimates can be challenging in an environment of uncertainty.  The OCA reiterated that it has consistently not objected to well-reasoned judgments that entities have made, and that it will continue to apply this perspective. (See, e.g., Chief Accountant Sagar Teotia, Remarks before the AICPA National Conference on Banks & Savings Institutions (September 9, 2019)

Some of the many accounting areas that may involve significant judgments and estimates in light of the evolving status of COVID-19 include, but are not limited to:

  • Fair value and impairment considerations
  • Leases
  • Debt modifications or restructurings
  • Hedging


  • Revenue recognition
  • Income taxes
  • Going concern
  • Subsequent events
  • Adoption of new accounting standards

Providing transparent information regarding the judgments and estimates made in connection with the required disclosures in these and other areas is important.

Finally, the OCA continues to work with market participants regarding the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The CARES Act, allows a limited number of entities the option to temporarily defer or suspend the application of two provisions of U.S. Generally Accepted Accounting Principles (GAAP), specifically:

  • Section 4014 provides that no insured depository institution, bank holding company, or any affiliate thereof shall be required to comply with FASB Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) during the period beginning on March 27, 2020 until the earlier of (1) the date on which the national emergency concerning the COVID-19 outbreak terminates; or (2) December 31, 2020.
  • Section 4013 provides that a financial institution may elect to suspend troubled debt restructuring (“TDR”) accounting under GAAP (see FASB Accounting Standards Codification Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors) in certain circumstances, during the period beginning March 1, 2020 and ending on the earlier of (1) December 31, 2020, or (2) the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak terminates.

For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available.

Related Services: SEC compliance and Financial Reporting; IPO Readiness; Technical Accounting And Position Papers; Audit Support; Risk Advisory Services

About Centri Business Consulting, LLC

Centri Business Consulting provides the highest quality finance and accounting consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reporting, internal controls, technical accounting research, valuation, and CFO advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skill sets to ensure the project is completed timely and accurately.

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