SEC Chief Accounting Speaks on Financial Reporting and COVID-19
In a public statement, Sagar Teotia, Chief Accountant of the SEC, spoke to a number of implications of COVID-19 and financial reporting. Among other things, Mr. Teotia noted that the SEC staff recognizes that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates. Certain judgments and estimates can be challenging in an environment of uncertainty. Mr. Teotia noted that the SEC Office of the Chief Accountant, or OCA, has consistently not objected to well-reasoned judgments that entities have made, and OCA will continue to apply this perspective.
Mr. Teotia’s statement highlights some of the many accounting areas that may involve significant judgments and estimates in light of the evolving status of COVID-19 which include:
- Fair value and impairment considerations;
- Debt modifications or restructurings;
- Revenue recognition;
- Income taxes;
- Going concern;
- Subsequent events; and
- Adoption of new accounting standards (e.g., the new credit losses standard).
Mr. Teotia also offered guidance on the CARES Act which 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, or 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. Mr. Teotia advised that those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff will not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available.
Public companies should consider these issues when preparing their upcoming periodic quarterly or annual reports on Form 10-Q or Form 10-K, including financial statement footnote disclosures and Management’s Discussion and Analysis of Financial Position and Results of Operations (MD&A) and potentially Risk Factors.
Contact Steve Quinlivan for more information.