Dive Brief:
- The Securities and Exchange Commission is giving companies affected by the coronavirus outbreak an extra 45 days for filing public reports, if they can prove they need the time.
- "While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within required timeframes," said SEC Chairman Jay Clayton on Wednesday.
- The 45-day window applies to publicly traded companies that would otherwise have to meet disclosure requirements between March 1 and April 30.
Dive Insight:
To get the extension, they must submit a summary of why the relief is needed. If they need time beyond 45 days, they can apply for that, to
SEC. (2017). Wikimedia Commons
There are a number of reasons why companies might need more time. If they have operations in affected parts of China, more time would be needed to determine the impact on their supply chain, demand, costs and sales. The imposition of travel restrictions can affect business, meetings and audit operations.
The virus is also expected to make it harder for financial services companies to calculate expected credit losses under new accounting standards. Under previous standards, lenders didn't have to predict all of a loan’s losses upfront, but under the current expected credit loss (CECL) standard that took effect for public companies this year, lenders have to forecast all of those losses upfront, a tall order while the scope of the virus remains unclear.
In his statement, Clayton said companies should be proactive in providing investors with information on how they plan to address material risks from the virus.
"I urge companies to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements," he said.
Federal securities law includes a safe harbor for companies trying to make accurate forward-looking statements while assessing an uncertain situation like the one created by the virus. The safe harbor is in Section 21E of the Securities Exchange Act of 1934.
