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Law360 (April 9, 2020, 8:05 PM EDT ) The U.S. Securities and Exchange Commission's top brass stressed the importance of "high quality" disclosures amid COVID-19, urging SEC-registered public companies to bolster forward-looking statements as they prep for earnings releases.
SEC Chairman Jay Clayton and William Hinman, director of the Division of Corporation Finance, stressed Wednesday in a joint statement that first-quarter earnings statements and calls "will not be routine" as COVID-19 takes the spotlight in current and future business operations reporting and historically-based projections become less relevant.
"We urge our public companies … to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions," they said.
"Investors and analysts are thirsting to know where companies stand today and, importantly, how they have adjusted, and expect to adjust in the future, their operational and financial affairs," the statement said.
The duo cautioned firms to avoid generic or "boilerplate" disclosures and instead provide company-specific financial considerations, strategies and challenges through the eyes of management, adding that historical information may be "substantially less relevant."
They said financial and operational reports should explain future operating plans in light of COVID-19 with detailed discussions of current liquidity positions and expected financial resource needs, and that companies should disclose the impacts of any assistance coming their way through the $2 trillion coronavirus relief CARES Act or similar legislation.
"The more investors know about how management is assessing, planning for, and taking steps to address, the effects of COVID-19, the better investment decisions investors will make," according to the statement.
Providing a well-thought-out and executable strategy for addressing the effects of COVID-19 will also boost the confidence of investors, making them more likely to provide credit and other financing to companies, Clayton and Hinman argued.
They stressed that companies' forward-looking statements will benefit the greater good, not unlike forthcoming COVID-19 guidance from the health care industry as it relates to developments in testing, data analysis and therapeutics.
"Investors are not the only ones who are interested in how companies will adjust their affairs as we pursue our collective fight against COVID-19," they said.
Clayton and Hinman acknowledged the challenges of producing comprehensive forward-looking reports given the uncertainty that lies ahead.
They said operational status and financial results are particularly difficult to estimate when key metrics, such as the time frames for relaxing social distancing and other mitigation efforts, are not uniform and likely to change.
The duo urged companies to "avail themselves" of the safe harbors afforded them under securities law, adding: "Given the uncertainty in our current business environment, we would not expect to second guess good faith attempts to provide investors and other market participants appropriately framed forward-looking information."
--Editing by Emily Kokoll.
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