SEC Issues Guidance on Disclosure of COVID-19 Risks and Effects

The SEC Division of Corporate Finance ("Division") issued guidance to public companies regarding disclosures on the risks and effects of COVID-19.

The Division's guidance concerns COVID-19-related disclosures that can be material to investors. The Division stated that it "is monitoring how companies are reporting the effects and risks of COVID-19 on their businesses, financial condition, and results of operations." The Division stated that disclosure of COVID-19- related risks and effects may be "necessary or appropriate in a company management's discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements."

The Division offered "questions to consider with respect to [a company's] present and future operations." Among them:

• What are the effects of the pandemic on future operating results and near-and-long-term financial conditions?

• How has COVID-19 impacted capital and financial resources, including the overall liquidity position and outlook?

• How has COVID-19 affected assets on the balance sheet and the ability to timely account for those assets?

• Is the firm able to function adequately using remote working arrangements?

• Is the firm's business continuity plan holding up?

• Will the pandemic have a long-term effect on demand for the firm's products and services?

• How will travel restrictions and border closures affect the firm?

The SEC also warned firms that they should not trade in their own securities prior to dissemination of material non-public information. The Division said that firms seeking to raise money, or buy back their own securities, must consider whether COVID-19 has affected the company in a way that would be material to investors and, if so, the company, and its directors and officers, should refrain from trading in the company's securities until such information is disclosed to the public.