On June 23, 2020, in advance of quarter-two 2020 reporting, the CorpFin Staff issued Disclosure Guidance Topic 9A – Coronavirus (COVID-19) — Disclosure Considerations Regarding Operations, Liquidity, and Capital Resources to provide “additional views of the Division of Corporation Finance regarding operations, liquidity, and capital resources disclosures companies should consider with respect to business and market disruptions related to COVID-19”. The new Disclosure Guidance Topic supplements Topic 9, which was issued in March 2020.
Included in the Disclosure Guidance Topic is a discussion of expectations that companies will continue to assess the impact of COVID-19 on their operations and financing. In the document that staff states:
“We continue to encourage companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management and to proactively revise and update disclosures as facts and circumstances change. These disclosures should enable an investor to understand how management and the Board of Directors are analyzing the current and expected impact of COVID-19 on the company’s operations and financial condition, including liquidity and capital resources.
The Disclosure Guidance Topic offers a list of possible considerations, including issues such as:
- What are the material operational challenges that management and the Board of Directors are monitoring and evaluating?
- How is your overall liquidity position and outlook evolving
- Have you accessed revolving lines of credit or raised capital in the public or private markets to address your liquidity needs?
- Have COVID-19 related impacts affected your ability to access your traditional funding sources on the same or reasonably similar terms as were available to you in recent periods?
- Are you at material risk of not meeting covenants in your credit and other agreements?
- If you include metrics, such as cash burn rate or daily cash use, in your disclosures, are you providing a clear definition of the metric and explaining how management uses the metric in managing or monitoring liquidity?
- Have you reduced your capital expenditures and if so, how? Have you reduced or suspended share repurchase programs or dividend payments? Have you ceased any material business operations or disposed of a material asset or line of business? Have you materially reduced or increased your human capital resource expenditures? Are any of these measures temporary in nature, and if so, how long do you expect to maintain them?
- Are you able to timely service your debt and other obligations?
- Have you altered terms with your customers, such as extended payment terms or refund periods, and if so, how have those actions materially affected your financial condition or liquidity?
- Are you relying on supplier finance programs, otherwise referred to as supply chain financing, structured trade payables, reverse factoring, or vendor financing, to manage your cash flow?
- Have you assessed the impact material events that occurred after the end of the reporting period, but before the financial statements were issued, have had or are reasonably likely to have on your liquidity and capital resources and considered whether disclosure of subsequent events in the financial statements and known trends or uncertainties in MD&A is required?
The guidance also includes discussion of the impact of CARES Act assistance on companies and going concern considerations.
As always, your thoughts and comments are welcome!