Category Archives: COVID-19

May 4, 2020 SEC Investor Advisory Committee Meeting to Focus on COVID-19 Matters

COVID-19

On April 27, 2020 the SEC announced that its Investor Advisory Committee will hold a virtual meeting on May 4, 2020.  Discussions will focus on two major agenda items:

Public company disclosure considerations in a COVID-19 pandemic context, and

Public company shareholder engagement/virtual shareholder meetings in a COVID-19 pandemic context

You can read the full agenda here.

The meeting will be available via webcast and will also be archived for later viewing.

As always, your thoughts and comments are welcome!

The SEC Professionals Group and Examples of COVID-19’s Disclosure Impact

COVID-19, Reporting

If you are not familiar with the SEC Professionals Group, you will find that this member-managed group is a great source of SEC reporting information, community and support.  One such example is its weekly “Corona Conversations,” which takes place each Friday at 1 p.m. EDT (30 to 60 minutes), where members connect and discuss new topics weekly.  In these virtual meetings, members can raise questions and share insights and knowledge to help support each other as we all deal with the impact of COVID-19.

In the April 17, 2020, “Corona Conversation,” Alyson Clabaugh of Intelligize and George Wilson of SEC Institute reviewed accounting and disclosure areas affected by COVID-19, focusing on questions from members and providing example disclosures from recent filings.  They will continue this review of examples in the April 24, 2020 meeting.

Here are some of the topics included in the April 17 discussions:

  • A disclosure in response to a question about CARES Act disclosures:

AEHR TEST SYSTEMS • 10-Q (Q3 2020) • 04/14/2020
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company is currently analyzing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available. https://apps.intelligize.com/SECFilings/View/Filings/18437872

  • Two examples in response to a question about the classification of lease termination costs:

FRANKLIN COVEY CO • 10-Q (Q2 2020) • 04/09/2020
SG&A Expense. Decreased Direct Office SG&A expense was primarily due to the office closure in China related to the COVID-19 outbreak, reduced travel and advertising costs, and savings in other areas of Direct Office operations. These reductions were partially offset by increased associate expenses resulting from increased commissions on higher sales and new sales and sales-related https://apps.intelligize.com/SECFilings/View/Filings/18431937

OFFICE DEPOT INC• 10-K (FY 2019) • 02/26/2020.
[Risk factor] As a consequence, trade restrictions, including new or increased tariffs, quotas, embargoes, sanctions, safeguards, customs restrictions, epidemics/pandemics, like coronavirus, and mandatory government closures could increase our cost of goods sold or reduce the supply of the products available to us. https://apps.intelligize.com/SECFilings/View/Filings/18325765

  • A reference to CorpFin Disclosure Guidance Topic 9 in response to a question about non-GAAP measures related to COVID-19:

See the non-GAAP guidance here: https://www.sec.gov/corpfin/coronavirus-covid-19

  • An example in response to a question about non-GAAP measure disclosures:

CITIZENS FINANCIAL GROUP INC/RI • 8-K (Items: 2.02, 7.01, 9.01) ● 04/17/2020 • EX-99.1.
Key performance metrics, non-GAAP financial measures and reconciliations – Underlying excluding the impact of COVID-19 on provision for credit losseshttps://apps.intelligize.com/SECFilings/View/Filings/18443473/Exhibits/12110912

  • An example about COVID-19 risks and uncertainties disclosures:

WOD RETAIL SOLUTIONS, INC. • 10-K (FY 2019) • 04/16/2020
Risks and Uncertainties. In December 2019, a novel strain of coronavirus surfaced in China, which has and is continuing to spread throughout the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The governors of New York, California and several other…https://apps.intelligize.com/SECFilings/View/Filings/18442914

  • Three examples in response to a question about the impact of COVID-19 on ICFR:

INTEGRITY APPLICATIONS, INC. • 10-K (FY 2019) • 04/14/2020
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As the Company has historically had personnel both in the U.S. and Israel, there has been no change in working status due to working remotely as a result of COVID-19.https://apps.intelligize.com/SECFilings/View/Filings/18438236

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ • 10-Q (Q3 2020) • 04/10/2020
There were no changes in our internal control over financial reporting that occurred during the three months ended February 29, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Subsequent to February 29, 2020, we have not experienced any material impact to our internal controls over financial reporting given that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.https://apps.intelligize.com/SECFilings/View/Filings/18434581

INSPIRED ENTERTAINMENT, INC. • 10-K (FY 2019) • 03/30/2020
Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. Prospectively and in particular while the current remote working conditions associated with the COVID-19 outbreak remain in effect, Management intends to ensure that all reviews are fully completed prior to issuing the draft financial statements to our external auditors (or where possible make it clear this is the case) . Management will also add an additional third-party external review of the financial statements to the process prior to submission moving forward. At this time, we cannot provide assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. In addition, we continue to evaluate and work to improve our internal control over financial reporting related to the identified deficiencies that led, in aggregate, to a material weakness, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. assurance level as of December 31, 2019.https://apps.intelligize.com/SECFilings/View/Filings/18409342

  • Two examples in response to questions about the impact of COVID-19 on CECL:

PNC FINANCIAL SERVICES GROUP, INC. • 8-K (Items: 2.02, 9.01) • 04/15/2020.
Provision for credit losses of $914 million, which was calculated under the Current Expected Credit Loss (CECL) accounting standard effective January 1, 2020, increased $693 million primarily due to the significant economic impact of COVID-19 and loan growth…
https://apps.intelligize.com/SECFilings/View/Filings/18438858

HOME BANCSHARES INC • 8-K (Items: 2.02, 7.01, 9.01) ● 04/16/2020 • EX-99.1
The CECL double accounting for LH-Finance was $9.3 million. The normal CECL loan provision was approximately $5.0 million and the CECL COVID-19 loan provision was approximately $71.7 million. Our CECL provisioning model is significantly tied to projected unemployment rates. As a result of COVID-19, the unemployment rate projections significantly increased from January 1 to the end of March 2020.
https://apps.intelligize.com/SECFilings/View/Filings/18441297

  • A publication about accounting for government assistance in response to a participant question:

EY Guidance on government assistance: TTP08738-201US_CARESAct_04-03-2020.pdf

You can find other disclosure examples in the archived minutes from the April 17 Corona Conversation on the SEC Pro’s group webpage.

The SEC Pro Group also conducts quarterly meetings and other functions to provide support and knowledge for members.  You can learn more and apply for membership here.

You can also complete SEC Pro Group’s benchmarking survey and participate in setting the focus areas for the coming year.

As always, your thoughts and comments are welcome!

FASB Addresses Impact of COVID-19 and Publishes Lease Accounting Q&A

COVID-19

As we mentioned in this post, the FASB met on April 8, 2020, to address “Accounting Relief During the COVID-19 Pandemic.”  You can read Chairman Russell G. Golden’s statement about the meeting here.

Topics addressed were primarily for private companies and not-for-profits.  Steps included decisions to issues proposals for an optional one-year delay for the new leasing standard for private companies and not-for-profits and a one-year delay for the revenue recognition for private company franchisors.

The FASB is also working on a number of question and answer documents related to the disruption created by COVID-19.  On April 10, 2020, the FASB published a Q&A document addressing questions dealing with lease concessions due to COVID-19.  Essentially the Q&A document provides that for such concessions companies will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and “can elect to apply or not apply the lease modification guidance in Topic 842 Leases or Topic 840 Leases to those contracts.”

While the meeting minutes are not yet posted, they will be available here when they are completed.  You can read a summary of the tentative decisions reached at the meeting here.

As always, your thoughts and comments are welcome!

A Few Example Proxies for Virtual Annual Meetings

COVID-19

As we discussed in our One-Hour Briefing “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings,” holding a virtual annual meeting involves both state and securities law considerations.  If you are looking for example proxy statements for virtual annual meetings these two from Baxter International and Hub Group may be helpful.

Also, as an FYI, we are hearing about scheduling challenges as companies such as Computershare and Broadridge run out of capacity to accommodate the number of companies moving to virtual formats for their annual meetings.

As always, your thoughts and comments are welcome.

 

An Example of COVID-19 Forewarning Disclosures

COVID-19

In our recent One-Hour Briefing “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings” we reviewed the SEC’s forewarning disclosure requirements.  Thanks to one of the folks listening to the briefing here is an example from BP.  While this is in a press release, it is an early warning and is a reasonable example of the language that would be appropriate in MD&A.  Towards the bottom of the press release in a section titled “First quarter update,” BP makes this statement:

“BP continues to review potential first quarter impairment charges and currently expects to take a non-cash, non-operating charge of around $1 billion in the quarter”

Thanks to all of you who have listened to our COVID-19 related programs, all of which are available without charge, and as always, your thoughts and comments are welcome.

SEC Chair and Corp Fin Director Issue Statement About COVID-19 Disclosure

COVID-19

On April 8, 2020, SEC Chairman Jay Clayton and CorpFin Director William Hinman issued a Public Statement titled “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19.”

The Statement provides valuable thoughts, advice and guidance as we approach quarter-end earnings releases and reporting.  In previous statements and guidance about the impact of COVID-19 the SEC has consistently made the point that in a period of such dramatic disruption and uncertainty, providing investors information about management’s actions and plans to address this disruption is important, despite the uncertainty involved.

This Statement builds on this theme.  Chairman Clayton and Director Hinman say:

“We urge companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.”

The Statement includes an extensive series of observations about the current environment and its uncertainties.  It then makes a number of disclosure related requests, including:

“Company disclosures should reflect this state of affairs and outlook and, in particular, respond to investor interest in:

(1) where the company stands today, operationally and financially,

(2) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and

(3) how its operations and financial condition may change as all our efforts to fight COVID-19 progress.  Historical information may be relatively less significant.”

The Statement also enumerates important disclosure considerations in the current environment, including forward looking information issues.  The topics addressed are:

  • Our Collective, Full Mitigation Response to COVID-19 Has Substantially Affected our Economy and Our Markets.
  • SEC Actions Have Focused on Market Integrity and Function
  • There is Broad Support Among Market Participants for COVID-19 Mitigation Efforts
  • There is Broad Recognition of the Need for a Transition to Forward-Looking, Health and Welfare Strategies
  • Frameworks for Forward-Looking Health and Welfare Strategies are Coming Into Focus
  • Extensive Coordination Across the Public and Private Sectors Will Be Essential to Our Success in Fighting COVID-19
  • Q1 Earnings Reports and Related Investor and Analyst Calls Will Not be Routine
  • There is Intense Investor Interest in Company-Specific Operational and Financial Status and Plans for Addressing the Effects of COVID-19
  • We Request that Companies Provide as Much Information as is Practicable Regarding Their Current Status and Plans for Addressing the Effects of COVID-19
  • We Recognize that Producing Forward-Looking Disclosure Can be Challenging and Believe that Taking On that Challenge is Appropriate
  • Robust, Forward-Looking Disclosures Will Benefit Investors, Companies and, More Generally, Our Fight against COVID-19.  Such Disclosures Will Facilitate Communication and Coordination Among the Public and Private Sectors

As we approach quarter-end, this Statement is important reading.

As always, your thoughts and comments are welcome!

SEC Updates Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns

COVID-19, Reporting

On April 7, 2020 the SEC staff updated their guidance about annual meeting processes during the period of disruption cause by COVID-19.  The principle changes are:

The addition of a new section about delays in printing and mailing of full set of proxy materials

An update to clarify that the section on changes in date, time, and location applies to special meetings

An update by the Division of Investment Management to the section on changes in date, time, and location of a shareholder meeting addressing meetings held by investment companies in connection with business combinations or certain other transactions

If you would like more background about this guidance you can listen to the archived version of this complimentary One-Hour Briefing “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings” and this blog post from March 13, 2020 about the original staff guidance.

As always, your thoughts and comments are welcome!