COVID-19: Continued importance of high-quality financial reporting
FINANCIAL REPORTING INSIGHTS |
As many companies prepare for their second-quarter financial reporting, SEC Chief Accountant Sagar Teotia issued a statement on the continued importance of high-quality financial reporting in light of COVID-19. In addition to addressing significant COVID-19-related financial reporting issues, the statement reminded audit committees of the critical need for their oversight in these times of rapid change and increased uncertainty. Other reminders issued by the Chief Accountant included the following:
- Companies should ensure that significant judgments and estimates made to address recently developing financial reporting matters are disclosed in a manner that is understandable by and useful to investors.
- As preparers adapt their financial reporting processes in response to the changing environment, if a change materially affects, or is reasonably likely to materially affect, an entity’s internal control over financial reporting, such a change must be disclosed in quarterly filings in the fiscal quarter in which it occurred.
- In each reporting period, including interim periods, management should consider whether relevant conditions and events, taken as a whole, raise substantial doubt about the entity’s ability to meet its obligations as they become due within one year after the issuance of the financial statements. In instances where substantial doubt about an entity’s ability to continue as a going concern exists, management should consider whether its plans alleviate such substantial doubt, and make appropriate disclosures to inform investors. If after considering management’s plans substantial doubt about an entity’s ability to continue as a going concern is not alleviated, additional disclosure is required.
- Although a review of interim financial information is not designed to identify conditions or events that indicate substantial doubt about an entity’s ability to continue as a going concern, an auditor may become aware of such conditions or events in the course of performing review procedures. In such cases, auditors should inquire with management and consider the adequacy of the relevant disclosure. After performing such procedures, to the extent the auditor determines the relevant disclosure is inadequate, the auditor should extend the procedures, evaluate the results and communicate as appropriate with the issuer and its audit committee.
Additional disclosure obligations that companies should consider with respect to COVID-19 previously was issued in Division of Corporation Finance Disclosure Guidance Topic No. 9.