by Betty Moy Huber and Paula H. Simpkins
Last week, senior leaders of the Securities and Exchange Commission (SEC) and the Chairman of the Public Company Accounting Oversight Board (PCAOB) issued a joint statement (Statement) noting the potential effect that the coronavirus may have on reporting companies, reminding companies of their disclosure obligations and notifying companies affected by the virus that they may contact the SEC for guidance or a determination of their eligibility for relief from filing deadlines. The Statement comes in the wake of numerous articles contemplating the virus’ effect on businesses that rely on global supply chains. On Tuesday, one Wall Street Journal commentator posited that “the coronavirus could cause supply-chain disruptions that are unlike anything we have seen in the past 70 years.”
SEC Chairman Jay Clayton, SEC Division of Corporation Finance Director Bill Hinman, SEC Chief Accountant Sagar Teotia, and PCAOB Chairman William D. Duhnke III released the Statement observing that U.S.-listed companies may have significant operations in China and other geographical regions impacted by the virus. The Statement also notes that how affected companies “plan and respond to the events as they unfold can be material to an investment decision. . . .” The Statement describes the impact and repercussions of the coronavirus as a “dynamic situation” and adds that companies may not yet know the extent to which they are affected. For example, companies could have suppliers, distributors or customers in affected geographical locales. Moreover, the effect of the virus may interfere with the quality of the audit process if an audit firm fails to have access to the information or personnel of the company being audited.
The Statement also provides a few reminders and notices:
Reminder of Reporting Requirements
The Statement recommends that companies “work to ensure that the financial reporting, audit and review processes are as robust as practicable. . . .” The Statement urges issuers to consult with their audit committees and auditors, and reminds companies of “the need to consider potential disclosure of subsequent events in the notes to the financial statements in accordance with guidance included in Accounting Standards Codification 855, Subsequent Events.” Generally, a subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or available to be issued.
Notice that Companies May Ask for Additional Guidance and Relief
The Statement invites companies to engage with the SEC if companies need relief or guidance on their reporting. The Statement notes that the SEC generally grants “appropriate relief from filing deadlines in situations where, in light of circumstances beyond the control of the issuer, filings cannot be completed on time with appropriate review and attention.”
Betty Moy Huber is counsel and Paula H. Simpkins is an associate at Davis Polk & Wardwell LLP.
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