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SEC Disclosure Guidance About COVID-19 and Additional Filing Extensions

The Division of Corporation Finance of the Securities and Exchange Commission issued guidance on March 25, 2020, about disclosure considerations and other securities laws matters relating to COVID-19. The SEC also extended conditional relief from reporting and proxy delivery requirements for public companies, funds, and investment advisers affected by COVID-19.

Public Company Disclosure Guidance

The Division of Corporation Finance issued Disclosure Guidance Topic No. 9, which provides detailed guidance regarding disclosure considerations, insider trading, financial reporting, non-GAAP measures and other topics for public companies affected by COVID-19. Highlights of the guidance include the following:

Tailor company-specific COVID-19 disclosures, and revise and update disclosures as facts and circumstances change. The SEC provided an illustrative (but not exhaustive) list of topics that each company will need to assess carefully in considering the effects of COVID-19 and related disclosure obligations, including:

  • Near- and-long-term financial condition and results of operations;
  • Capital and financial resources, including liquidity, access to capital, cash flow, covenant compliance and overall capital outlook;
  • Assets on the balance sheet and the ability to timely account for those assets, including any changes to fair-value determinations;
  • Material impairments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments;
  • The ability to maintain operations, financial reporting systems, internal control over financial reporting and disclosure controls, and procedures in light of remote work and facility closures;
  • Business continuity plans and material expenditures required to implement these plans;
  • Demand for products or services;
  • Supply chain and distribution networks for products or services;
  • Operational constraints or other effects on human capital resources and productivity; and
  • The effects of travel restrictions and border closures on the company’s ability to operate and achieve its business goals.

Refrain from trading until material non-public information (MNPI) is broadly disseminated. The SEC cautioned companies to refrain from trading while the company is aware of a risk related to COVID-19 that would be material to investors until investors have been appropriately informed about the risk. The SEC also reminded companies to take necessary steps to avoid selective disclosure of MNPI and noted that companies should “consider whether [they] may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.”

Explain why non-GAAP financial measures or metrics are useful and how they help investors assess the effect of COVID-19 on the company’s financial position and results of operations. Recognizing that a number of novel or complex accounting issues may arise in connection with COVID-19, the SEC also provided detailed guidance regarding the presentation of any non-GAAP financial measure or performance metric to adjust for or explain the effect of COVID-19.

In instances where a GAAP financial measure is not available at the time of the earnings release (because the measure may be affected by COVID-19-related adjustments that may require additional information and analysis to complete), the new guidance states that “the Division would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results.” When GAAP financial statements are required, such as filings on Form 10-K or Form 10-Q, companies should reconcile to GAAP results and not to provisional amounts or a range of estimated results.

Consult the SEC for additional guidance. The SEC encouraged companies and their representatives to contact SEC staff with questions or matters of particular concern.

Access the complete disclosure guidance here.

Public Company Filing Relief

The SEC issued an order that provides public companies with a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. The order supersedes and extends the SEC’s original order issued March 4, 2020. To qualify for the extension, a public company must submit a current report explaining its particular circumstances and why the relief is needed for each periodic report that is delayed. To take advantage of the extension, a company must furnish a Form 8-K or Form 6-K by the original filing deadline of the report for which the extension is sought.

The SEC clarified its position that a public company taking advantage of the 45-day extension would be considered current and timely under the Form S-3 and Form S-8 eligibility standards and the Rule 144(c) current public information standard if the company was current and timely as of March 1, 2020, and if it files any report due during the relief period within 45 days of the filing deadline for the report. Reporting companies taking advantage of the 45-day extension will be permitted to rely on Rule 12b-25 if they are unable to file the required reports on or before the extended due date. Access the order here.

The SEC also offered targeted relief on a case-by-case basis to companies facing unique reporting compliance challenges as a result of COVID-19. Access the full press release here.

Investment Company and Investment Adviser Relief

The SEC issued orders that provide certain investment companies and investment advisers with additional time to hold in-person board meetings and meet certain filing and delivery requirements for which the due date would have been between March 13 and June 30, 2020. The orders supersede and extend the filing periods covered by the SEC’s original orders issued on March 13, 2020. To qualify for the extension, entities must notify the SEC staff and their investors of the intent to rely on the relief, but generally no longer need to describe why they are relying on the order or estimate a date by which the required action will occur. Access the orders here and here.

The following associate contributed to the development of this article: Claire A. Wenholz.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.