Recap of SEC Disclosure Requirements in Response to COVID-19

Kelley Drye Client Advisory

In this advisory, we recap our guidance for clients in connection with drafting pandemic disclosure for an offering document or evaluating what, if anything, to disclose in public filings. The Securities and Exchange Commission (“SEC”) acknowledged over the past few months the challenges of providing disclosure as the pandemic unfolds—the difficulty of describing current financial status and operating conditions in the midst of circumstances that may be changing constantly and rapidly.  Nevertheless, the SEC has recommended that issuers provide current issuer- and security-specific information for the benefit of investors and the marketplace.

Guidance Provided

On March 25, 2020, the Securities and Exchange Commission’s Division of Corporate Finance (“Division”) released CF Disclosure Guidance Topic No. 9[1](“original guidance”) highlighting disclosure and securities law obligations that companies should consider related to COVID-19. On June 23, 2020, the Division released CF Disclosure Guidance Topic No. 9A[2](“supplemental guidance”) providing questions companies should consider when assessing what information to disclose regarding the impact of COVID-19. The original guidance and supplemental guidance represents the views of the Division only. The guidance is not a rule, regulation, or statement of the SEC, and the SEC did not approve or disapprove the guidance.

Below is a summary of some of the Division’s COVID-19 guidance as it pertains to: (1) the need to refrain from trading prior to dissemination of material non-public information; (2) reporting earnings and financial disclosures; and (3) ongoing assessment of the impact of COVID-19.

Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

The original guidance reminded companies that directors, officers, and other insiders who are aware of material information related to COVID-19 impacts or risks should refrain from trading in the company’s securities until the company discloses the information to the public. Companies should continue to take necessary steps to avoid selective disclosures by disseminating material information broadly to the public. The Division advised that companies should also consider whether to revisit, refresh, or update previous disclosures if the information becomes materially inaccurate.

Reporting Earnings and Financial Disclosures

The original guidance encouraged companies to address financial matters earlier than usual as the effect of COVID-19 may make it difficult to complete the work necessary for timely filings. The Division advised that if a company relies on a non-GAAP financial measure or performance metric, the company should highlight why the measure or metric is useful and how it can help investors understand the effect of COVID-19 to the company’s financial position and operational results. COVID-19 adjustments may impact a GAAP financial measure, requiring more information or analysis to complete. In that circumstance, the Division would not object to reconciling a non-GAAP financial measure to preliminary GAAP results. The preliminary GAAP results must include either a provisional amount based on a reasonable estimate, or a range of reasonably estimated GAAP results. Non-GAAP financial measures should not be more prominently disclosed than the most directly comparable GAAP measure or range of GAAP measures. The provisional amount or range should reflect a reasonable estimate of COVID-19 related charges not yet resolved, such as impairment charges. Companies must reconcile filings requiring GAAP financial statements, such as Form 10-K or Form 10-Q, to GAAP results and should not include provisional amounts or a range of estimated results.

The Division also advised that companies should not present non-GAAP financial measures or metrics only to present a more favorable view of the company. Rather, non-GAAP financial measures and metrics should be used to share with investors how the company is assessing the current impact of COVID-19 to the its financial condition and operating results. If a company shares non-GAAP financial measures or metrics reconciled to provisional amounts or an estimated range of GAAP measures, it should explain why the item is incomplete and the information or analysis needed to complete the accounting.

Ongoing Assessment of the Impact of COVID-19

Operations, Liquidity, and Capital Resources
The supplemental guidance recognized that companies might use diverse financing activities and face unique circumstances, and provided a non-exhaustive list of considerations that companies should use when tailoring disclosures regarding the impact of COVID-19. The Division advised that companies should focus on current and forward looking operational, liquidity, and capital resource risks. The list of considerations included:


  • Have you altered your operations, and which material operational challenges are you monitoring and evaluating? (i.e., health and safety policies, remote working, and return to work plan for employees)
  • Have you altered terms with your customers, and have those actions materially impacted your financial condition or liquidity?
  • Are you relying on supplier finance programs, structured trade payables, reverse factoring, or vendor financing to manage your cash flow? What are the material terms and do you face a material risk if a party to the agreement terminates?
  • If any of the measures are temporary, how long do you expect to maintain them? What factors will you consider in deciding to extend or curtail these measures?

  • How is your overall liquidity position and outlook evolving? Are operational challenges, the ability to meet to covenants in credit agreements, or the need to raise capital impacting, or likely to impact, your short and long term liquidity?
  • Are you able to access traditional funding sources on the same or similar terms? Have you pledged other collateral or made new guarantees? Was your credit rating downgraded?
  • Are you at material risk of defaulting? Have you used any deferral, forbearance period, or other concessions?
  • If including metrics in your disclosures, such as cash burn rate or daily cash use, are you providing a clear definition of the metric and how management uses the metric in managing or monitoring liquidity? Are you using material assumptions or estimates in calculating the metrics?
  • Have you reduced or suspended share repurchase programs or dividend payments?
  • If any of the measures are temporary, how long do you expect to maintain them? What factors will you consider in deciding to extend or curtail these measures?

Capital Resources:
  • Have you reduced your capital expenditures and how?
  • Have you ceased material business operations or disposed of a material asset or line of business?
  • Have you materially reduced or increased your human capital resource expenditures?
  • If any of the measures are temporary, how long do you expect to maintain them? What factors will you consider in deciding to extend or curtail these measures?

Government Assistance – The CARES Act

The CARES Act included financial assistance for companies in the form of loans and tax relief. The supplemental guidance provided that companies receiving assistance under the CARES Act should consider the short- and long-term impact of that assistance on the company’s financial condition, results of operations, liquidity, and capital resources. The Division advised disclosing the material terms of any relief and any anticipated issues with complying, assessing if the relief may materially impact revenues, and considering whether to disclose a material tax refund for prior periods. The Division also advised considering any material accounting estimates related to the relief and what uncertainties are involved in applying related accounting guidance.

A Company’s Ability to Continue as a Going Concern

Finally, the supplemental guidance addressed that management should consider whether there is substantial doubt” about the company’s ability to meet its obligations as they become due within one year after the financial statements. The Division did not define substantial doubt but provided that companies should consider whether there are conditions or events such as defaulting on outstanding obligations, labor challenges, or work stoppages when assessing the ability to continue as a going concern. The Division advised that if there is substantial doubt as to the company’s ability to continue as a going concern or management’s plans alleviate the substantial doubt, the financial statements should include appropriate disclosures which include plans to address the challenges and what steps have you taken to implement the plans.


The current news cycle is dominated by events that are being interpreted through the lens of the pandemic. We urge clients to reach out to Kelley Drye for guidance to assist you with your pandemic disclosures.

This Kelley Drye client advisory was written with the assistance of summer associate Lauren Kouser.

[1]      Division of Corporate Finance Securities and Exchange Commission, CF Disclosure Guidance: Topic No. 9 (March 25, 2020) https://​www​.sec​.gov/​c​o​r​p​f​i​n​/​c​o​r​o​n​a​v​i​r​u​s​-​c​o​v​id-19.
[2]      Division of Corporate Finance Securities and Exchange Commission, CF Disclosure Guidance: Topic No. 9A (June 23, 2020) https://​www​.sec​.gov/​c​o​r​p​f​i​n​/​c​o​v​i​d​-​1​9​-​d​i​s​c​l​o​s​u​r​e​-​c​o​n​s​i​d​e​r​a​tions.