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Risk & Compliance Journal
Risk management, strategy and analysis from Deloitte

SEC Reporting and Disclosures Involving COVID-19

Guidance from the Securities and Exchange Commission for conveying material current or potential effects of the pandemic makes it critical that management understand the impacts and risks their organizations face related to COVID-19.

As the SEC expects registrants to clearly disclose material risks and uncertainties, most entities will need to disclose the impact of COVID-19 in various sections of their SEC filings, including the risk factors section, management discussion and analysis (MD&A), the business section, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and financial statements.

In disclosure guidance (DG Topic 9, issued on March 25), the SEC staff provided illustrative questions for registrants to consider when developing disclosures related to the current and expected future impact of COVID-19. Those questions include, in part:

  • How has COVID-19 impacted your financial condition and results of operations? In light of changing trends and the overall economic outlook, how do you expect COVID-19 to impact your future operating results and near- and long-term financial condition?
  • How has COVID-19 impacted your capital and financial resources, including your overall liquidity position and outlook? Has your cost of or access to capital and funding sources, such as revolving credit facilities or other sources, changed, or is it reasonably likely to change? Have your sources or uses of cash otherwise been materially impacted? Is there a material uncertainty about your ongoing ability to meet the covenants of your credit agreements?
  • How do you expect COVID-19 to affect assets on your balance sheet and your ability to account for those assets in a timely way? For example, will there be significant changes in judgments in determining the fair value of assets measured in accordance with U.S GAAP or International Financial Reporting Standards?
  • Do you anticipate any material impairments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on your financial statements?
  • Have COVID-19-related circumstances, such as remote work arrangements, adversely affected your ability to maintain operations, including financial reporting systems, internal control over financial reporting, and disclosure controls and procedures?
    • If so, what changes in your controls have occurred during the current period that materially affect or are reasonably likely to materially affect your internal control over financial reporting?
  • Have you experienced challenges in implementing your business continuity plans, or do you foresee requiring material expenditures to do so?
  • Do you expect COVID-19 to materially affect the demand for your products or services?
  • Do you anticipate a material adverse impact of COVID-19 on your supply chain or the methods used to distribute your products or services?
  • Will your operations be materially impacted by any constraints or other impacts on your human capital resources and productivity?
  • Are travel restrictions and border closures expected to have a material impact on your ability to operate and achieve your business goals?

DG Topic 9 also provides considerations regarding how to reflect the effects of the pandemic in non-GAAP measures and key performance indicators (KPIs). The following addresses many of these considerations; however, we encourage registrants to review the questions and guidance in DG Topic 9 in detail.

Risk Factors

Registrants must disclose information about the most significant risks facing the entity or its securities. While many registrants may already disclose their general risk related to issues such as potential natural disasters or pandemics, they should consider whether to update the disclosure to clarify that the risk is no longer hypothetical and to provide more specificity about the actual and potential future impact of COVID-19.


A registrant should discuss in its MD&A the material quantitative and qualitative impact of COVID-19 on its business. For example, the discussion could address potential issues such as changes in consumer behavior, including an unusual increase or decrease in demand, travel bans or limitations, store or facility closures, declines in customer traffic, liquidity challenges or debt covenant issues, regulatory risks, or the impact on human capital.

In addition to discussing the impact on historical results, registrants are also expected to disclose, in accordance with SEC Regulation S-K, Item 303, “any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact” on their financial condition, results of operations, or liquidity.

These forward-looking disclosures are especially critical in connection with events like the COVID-19 pandemic and the related economic uncertainty. Such disclosures can give investors an early warning about risks such as (1) when and under what conditions charges may be incurred in the future as well as the potential magnitude of such charges, (2) when revenue growth or profit margins may not be sustainable because of underlying economic conditions, or (3) when the registrant may be unable to comply with debt covenants or have other liquidity issues.

In their MD&A disclosures about liquidity, registrants should consider discussing their working capital or other cash flow needs, anticipated changes in the amount and timing of cash generated from operations, the availability of other sources of cash along with potential limitations associated with accessing such sources, and the possible ramifications of their inability to meet their short- or long-term liquidity needs.

Early-warning disclosures should also be considered by management in connection with accounting areas that require significant judgment, such as contingencies, valuation allowances, or potential impairments. These account-specific disclosures are frequently included as part of the critical accounting estimates section of MD&A.

Given the uncertainty associated with COVID-19, there is likely to be a substantial increase in the level of judgment entities need to apply in estimating future results and the potential range of reasonably likely outcomes. Registrants should therefore consider expanding their disclosures about (1) the key assumptions used in their most significant estimates and (2) the sensitivity of such estimates to changes that could reasonably occur as events associated with COVID-19 continue to develop.

Consequently, registrants should consider updating, in their quarterly report on Form 10-Q, the critical accounting estimates previously disclosed in the Form 10-K, to the extent that there have been material changes to key assumptions and estimates.

MD&A disclosures are typically included in a Form 10-K or Form 10-Q, but due to the rapidly evolving impact of COVID-19, registrants may also file current reports on Form 8-K to update investors on the current and potential future impact of COVID-19 on their business. Many of these filings have also announced that registrants are withdrawing or updating previously issued guidance related to expected 2020 revenue and earnings targets.

Earnings Releases

As a result of COVID-19, there may be circumstances in which complete GAAP financial information is not available at the time of an earnings release because of ongoing consideration of COVID-19-related matters.

Registrants may choose to provide preliminary GAAP results that either include provisional amounts that are based on a reasonable estimate or a range of reasonably estimable GAAP results. Registrants should consider providing transparent disclosures that explain (1) why complete GAAP financial information is not available and (2) what additional information or analysis will be needed to complete it.

Since earnings releases often include non-GAAP measures, registrants should consider the guidance in DG Topic 9 on the non-GAAP reconciliation requirements when complete GAAP information is not available.

Non-GAAP Measures

Registrants may also consider reflecting various impacts of COVID-19 in their non-GAAP measures. DG Topic 9 notes that if a registrant elects to do so, “it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations.”

When using non-GAAP financial measures, a registrant must be aware of certain SEC requirements, including the rules in SEC Regulation G and in SEC Regulation S-K, Item10(e). In addition, the SEC staff has published a number of compliance and disclosure interpretations, which are updated periodically, to clarify its views on many non-GAAP presentation issues.

While the SEC may not object to a non-GAAP measure that adjusts for unusual items (e.g., restructuring charges), measures that adjust revenues or eliminate recurring cash operating expenses may be viewed as potentially misleading and therefore may be prohibited. Accordingly, a registrant may choose to present a non-GAAP measure that adjusts for unusual, direct, and incremental costs due to COVID-19 as well as any related economic uncertainty, such as asset or goodwill impairments.

However, a non-GAAP measure that adjusts for estimated lost revenues or profits is likely to be inappropriate because the SEC may view it as a tailored accounting principle. Entities may also consider presenting a non-GAAP measure that adjusts for salary continuation while its operations are suspended or closed. While the continuation of salaries in the absence of normal (or any) revenues may be considered unusual, adjusting for such expenses would represent the elimination of recurring cash operating expenses. Therefore, non-GAAP measures that adjust for such items may be challenged by the SEC.

Any new adjustments or changes to non-GAAP measures related to COVID-19 should be clearly labeled, and changes to such measures should be transparently disclosed. For more information, see A Roadmap to Non-GAAP Financial Measures.

Metrics and KPIs

Many registrants disclose the metrics and KPIs used to manage their business. Existing metrics and KPIs may be affected by the COVID-19 pandemic, and registrants may establish new metrics related to its impact.

If metrics change or evolve as a result of the impact of COVID-19 or for any reason, registrants should ensure that there is clear and transparent disclosure of the change and that definitions of the affected metrics are updated accordingly. Further, to provide the appropriate context for changes to metrics, a registrant may need to recast prior periods to conform to the current presentation if the changes are significant.

For more detail on these considerations as well as industry-specific information, see the complete Financial Reporting Alert.

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