On April 6, 2020, CorpFin issued two Compliance and Disclosure Interpretations related to its Order providing COVID-19 reporting relief.  The first deals with the interaction of Form 10-K General Instruction G’s provision allowing incorporation by reference of information required in Part III of Form 10-K if a company expects to furnish its proxy within 120 days of year-end.  The second deals with the interaction of U.S. and Canadian COVID-19 related relief for filers that use Form 40-F, which is part of the SEC’s MJDS.

You can also find the SEC’s earlier C&DI’s dealing with the interaction of Form 12b-25 and the provisions in the Order in this post.

Question 104.18

Question: Form 10-K allows Part III information to be incorporated by reference from a registrant’s definitive proxy or information statement, or, under certain circumstances, filed as an amendment to the Form 10-K, not later than 120 days after the end of the related fiscal year. May a registrant that is unable to file the Part III information by the 120-day deadline avail itself of the relief provided by the COVID-19 Order (Release No. 34-88465(March 25, 2020)) for the filing of the Part III information?

Answer: Yes, as long as the 120-day deadline falls within the relief period specified in the Order and the registrant meets the conditions of the Order.

• A registrant that timely filed its annual report on Form 10-K without relying on the COVID-19 Order should furnish a Form 8-K with the disclosures required in the Order by the 120-day deadline. The registrant would then need to provide the Part III information within 45 days of the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement.
• A registrant may invoke the COVID-19 Order with respect to both the Form 10-K and the Part III information by furnishing a single Form 8-K by the original deadline for the Form 10-K that provides the disclosures required by the Order, indicates that the registrant will incorporate the Part III information by reference and provides the estimated date by which the Part III information will be filed. The Part III information must then be filed no later than 45 days following the 120-day deadline.
• A registrant that properly invoked the COVID-19 Order with respect to its Form 10-K by furnishing a Form 8-K but was silent on its ability to timely file Part III information may (1) include the Part III information in its Form 10-K filed within 45 days of the original Form 10-K deadline, or (2) furnish a second Form 8-K with the disclosures required in the Order by the original 120-day deadline and then file the Part III information no later than 45 days following the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement. [April 6, 2020]

Question 112.02 

Question: An MJDS filer is required to file its Form 40-F on the same day the information included therein is due to be filed with any securities commission or equivalent regulatory authority in Canada. If an MJDS filer properly relies on any applicable Canadian COVID-19-related relief for extension of its filing deadline with the securities commission or equivalent regulatory authority, does the MJDS filer need to comply with the conditions for exemptive relief in the SEC’s COVID-19 Order (Release No. 34-88465 (March 25, 2020)) on the date the Form 40-F would have been due in the United States?

Answer: No. Under these facts, compliance with the conditions of the SEC’s COVID-19 Order on the original due date of the Form 40-F is not required. MJDS filers should also consider promptly disclosing their reliance on the Canadian COVID-19-related relief. [Apr. 6, 2020]

As always, your thoughts and comments are welcome!

On April 3, 2020, SEC Chief Accountant Sagar Teotia issued a Public Statement titled “Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19.”  In the Public Statement he addresses the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Cares Act, in Section 4014, provides a deferral for the Current Expected Credit Loss accounting standard (ASC 326) for insured depository institutions and credit unions insured by the National Credit Union Administration.  This deferral will end when the national emergency related to the outbreak of COVID-19 ends.  The uncertainty as to when the deferral will end presents significant tactical challenges. This deferral has also raised hopes that the FASB might extend the deferral to other entities.

The CARES Act, in Section 4013, also provides relief from troubled debt restructuring accounting for “financial institutions,” a term which is undefined in the Act.

In his Public Statement, Chief Accountant Teotia states:

The CARES Act, which was signed into law by the President on March 27, 2020, allows a limited number of entities the option to temporarily defer or suspend the application of two provisions of U.S. Generally Accepted Accounting Principles (GAAP).   OCA has received inquiries from preparers and auditors where the preparer has concluded that election of these narrow and limited options in Sections 4013 and 4014 of the CARES Act would be deemed to be in accordance with GAAP.  For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available.

 In this environment of uncertainty and hope, the FASB has scheduled a meeting for April 8, 2020 to “Address Standard-Setting Issues During the Coronavirus (COVID-19) Pandemic.”  You can read about the issues to be addressed, including “Agenda requests for deferral of standards” in this media advisory.

So, stay tuned!

In addition to the CECL deferral, the Public Statement also addresses:

• the many judgments that may be required due to the disruption and uncertainty created by COVID-19, with a reminder that OCA has “consistently not objected to well-reasoned judgments that entities have made” and that they will “continue to apply this perspective”

• auditing challenges and working with the PCAOB

• coordination with international organizations

• engagement with stakeholders

As always, your thoughts and comments are welcome!

Last week we posted about PLI’s inSecurities Podcast, an enjoyable and positive way to spend time during this period of disruption and uncertainty.  Episode 6 of the Podcast delves into whistleblower issues, which ties in nicely to two recent SEC announcements.  First, on March 30, 2020, the SEC reinforced the importance of its whistleblower program in this press release announcing another major cash award to a whistleblower.  This is the SEC’s third case where a whistleblower worked in a “compliance or internal audit” role.  Second, on April 3, 2020, the SEC announced this $2 million award to another whistleblower

Episode 6 of inSecurities can help you understand the fascinating and complex issues in this type of case.

We hope this helps you use your time in a valuable way during this period, and as always, your thoughts and comments are welcome!

On March 31, 2020 CorpFin issued two Compliance and Disclosure Interpretations to answer questions arising from its Order providing reporting relief for companies.  The C&DI’s deal with the interaction of Form 12b-25 and the provisions in the Order.

Question 135.12

Question: A registrant expects that due to COVID-19 it will be unable to file a report of the type covered by Rule 12b-25 on a timely basis without incurring an unreasonable effort or expense. It is uncertain as to its ability to file the required report within the applicable Rule 12b-25(b)(2)(ii) period. Should the registrant instead furnish a report on Form 8-K or 6-K, as applicable, relying on the COVID-19 Order (Release No. 34-88465 (March 25, 2020))?

Answer: Yes. As a condition to its use, the COVID-19 Order requires, among other things, that the registrant furnish certain specified statements by the later of March 16, 2020 or the original due date of the required report. If the registrant only files a Form 12b-25 by the original due date of the required report, it will have not met the condition of the COVID-19 Order to provide the statements called for by the original filing deadline on a furnished Form 8-K or Form 6-K. Unless this condition is met, the 45 day relief period provided in COVID-19 Order will not be available. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]

Question 135.13

Question: Can a registrant that filed a Form 12b-25 subsequently rely on the COVID-19 Order (Release No. 34-88465 (March 25, 2020)), to extend the filing deadline for the subject report?

Answer: The COVID-19 Order is conditioned on a registrant having furnished a Form 8-K or Form 6-K by the later of March 16, 2020 or the original due date of the report. A Form 12b-25 filing does not extend the original due date of a report. Therefore, unless a registrant that filed a Form 12b-25 also furnished a Form 8-K or Form 6-K by March 16, 2020 or the original due date of the report, it would not be able to rely on the COVID-19 Order.

On the other hand, a registrant that relies on the COVID Order for a report will be considered to have a due date 45 days after the original filing deadline for the report. As such, the registrant would be permitted to subsequently rely on Rule 12b-25 if it is unable to file the report on or before the extended due date. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]

As always, your thoughts and comments are welcome!

Coming to grips with how the uncertainty and disruption created by COVID-19 affects impairment testing will be a crucial part of this quarter-end.  To help SEC reporting professionals through this process, the SEC Institute Division of PLI will present a complimentary One-Hour Briefing – Impairment Testing Considerations for Quarter One in the 2020 Coronavirus Environment, on April 3, 2020 at 3 PM EDT.

Leading the discussion will be SEC Institute workshop leaders Bob Laux and George Wilson.  In this briefing you will:

• Recall and review the steps in the impairment testing processes for:
  • Plant assets
  • Intangible assets
  • Goodwill
• Understand the order in which to perform impairment tests
• List impairment testing considerations in the current environment for each category of the impairment test

The program will include several examples of common challenges and problems in performing impairment tests as well as a number of example SEC comments.  You can register for the program here.

You can find all of PLI’s COVID-19 related programs here.  New programs are added on a regular basis and are archived so that you can view them later at your convenience.  All programs are provided without charge.

As always, your thoughts and comments are welcome.

An enjoyable and positive way to spend time during this period of disruption and uncertainty is listening to new podcasts.  Several weeks ago PLI launched the inSecurities Podcast, an in-depth podcast examining changes to securities rules, regulations, and cases from a practitioner’s perspective in both law and accounting.  The podcast is hosted by Chris Ekimoff, a forensic accountant, and Kurt Wolfe, a securities regulatory attorney.  They provide a wonderfully balanced and entertaining perspective on securities issues ranging from insider trading to whistleblowing.  You can find the podcast here and also at such podcast providers as Apple and Spotify.

If you’d like a good starting point, Episode 4 is a deep dive into insider trading, Episode 5 features a market structure discussion with former SEC Commissioner Robert Jackson and George Mason University Law Professor J.W. Verret, and Episode 6 delves into whistleblower issues, all fascinating discussions.

Beyond great information and interesting content, be sure to listen to their acronym bingo episode which is hopefully coming soon!

We hope this helps you use your time in a valuable way during this period, and as always, your thoughts and comments are welcome!

We always emphasize at our Workshops that all SEC filings require manual signatures.  Regulation S-T, the electronic filing rules, contains this provision:

• 232.302   Signatures.

……….

(b) Each signatory to an electronic filing (including, without limitation, each signatory to the certifications required by §§240.13a-14, 240.15d-14 and 270.30a-2 of this chapter) shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years. Upon request, an electronic filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.

If you would like to see a case where a company got in trouble for not obtaining manual signatures, amongst other issues, check out this enforcement case.

In the current COVID-19 chaos the SEC does not want to expose people to more risk because of this requirement.  On March 25, 2020, CorpFin, along with the Divisions of Investment Management and Trading and Markets, issued a Statement to provide relief.  The statement provides:

“In light of these difficulties, the staff will not recommend the Commission take enforcement action with respect to the requirements of Rule 302(b) if:

• a signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);

• such document indicates the date and time when the signature was executed; and

• the filer establishes and maintains policies and procedures governing this process.

The signatory may also provide to the filer an electronic record (such as a photograph or pdf) of such document when it is signed.”

As always, your thoughts and comments are welcome!

On March 25, 2020 the SEC extended its March 4 Order granting deadline and annual meeting relief.  The relief period now includes reports due on or before July 1, 2020.

In addition CorpFin also issued Disclosure Guidance Topic No. 9 –  Coronavirus (COVID-19).

Both will be discussed in depth along with related disclosure and communication considerations in our complimentary One Hour Briefing on March 26, 2019 – COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings.

As always, your thoughts and comments are welcome.

Coming to grips with SEC reporting and other legal implications of COVID-19 is crucial in this period of uncertainty and disruption.  PLI, together with our volunteer faculty, has developed a number of programs to help in dealing with these implications, with more programs being added regularly. Also, all of these programs are being provided without charge.

This Thursday, March 26, 2020, we are presenting a complimentary One-Hour Briefing at 3:00 PM EDT titled “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings”.  Leading the discussion will be SEC Institute workshop leader Gary Brown and his colleague from Nelson Mullins, Charles Vaughn, along with George Wilson from SEC Institute.  This briefing will:

• Review the SEC’s guidance for COVID-19 disclosure considerations
• Discuss the details of the SEC’s deadline and reporting accommodations relating to COVID-19
• Outline risk factor disclosure requirements as applied to COVID-19
• Identify the need for known trend disclosures in MD&A about COVID-19’s possible impact
• List where COVID-19 may create disclosure issues in other items in Form 10-Q
• Analyze the impact of COVID-19 on the annual meeting process
• Review the SEC’s guidance for virtual annual meetings

On the next day, March 27, 2020, we are presenting another One-Hour Briefing “Coronavirus Considerations: SEC Disclosure, Labor & Employment, Insurance, Litigation, Breach of Contract and Force Majeure Issues”.

You can find all of PLI’s COVID-19 related programs here.  New programs are being added on a regular basis so you might want to bookmark this webpage.

As always, your thoughts and comments are welcome.

On March 26, 2020 SEC Institute will present a complimentary One-Hour Briefing titled “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings”.

In this briefing participants will:

• Review the SEC’s guidance for COVID-19 disclosure considerations
• Discuss the details of the SEC’s deadline and reporting accommodations relating to COVID-19
• Outline risk factor disclosure requirements as applied to COVID-19
• Identify the need for known trend disclosures in MD&A about COVID-19’s possible impact
• List where COVID-19 may create disclosure issues in other items in Form 10-Q
• Analyze the impact of COVID-19 on the annual meeting process
• Review the SEC’s guidance for virtual annual meetings

Each participant will be able to ask questions of the presenters.  You can register for this complimentary program here.

As always, your thoughts and comments are welcome.