SEC Emphasizes Importance of Robust Forward-Looking Disclosure for Q1 to Address COVID-19

Practical Steps to Approach Q1 Disclosures

15 min read

For further information, please visit the White & Case Coronavirus Resource Center.

On April 8, 2020, in light of the continuing global COVID-19 pandemic and in anticipation of upcoming first-quarter disclosures, SEC Chairman Jay Clayton and Corp Fin Director William Hinman issued a public statement1 emphasizing the importance of robust quarterly disclosure that is more forward-looking than historical and urging companies to provide “as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.”

Specifically, the statement notes that company disclosures should “respond to investor interest in:

  1. where the company stands today, operationally and financially,
  2. how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and
  3. how its operations and financial condition may change as…efforts to fight COVID-19 progress.”

The SEC Chairman and Corp Fin Director also emphasize that first-quarter earnings releases and conference calls will “not be routine.” In many cases, historical information “may be substantially less relevant”, as 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 operation and financial affairs to most effectively work through the COVID-19 health crisis.”


Practical Steps to Approach Q1 Disclosures

In this client alert, we will address practical considerations as companies approach their Q1 disclosures in light of the helpful SEC guidance provided in recent weeks.

  • Approach disclosures on COVID-19 as one picture: As preparations begin for Q1 disclosure, management should first assess COVID-19-related impacts to a company’s business and approach Q1 disclosure in an organized manner across a company’s (1) risk factors, (2) MD&A, (3) earnings release and (4) earnings conference call, in order to provide a well-thought-out and consistent message to investors throughout all of these disclosures. Assessing and planning these disclosures should begin as early as possible.2
  • Assess potential impacts to your company related to COVID-19. To draft Q1 COVID-19-related disclosures, a cross-functional team which goes beyond the legal department should first assess the key areas where COVID-19 is having, or may potentially have, an impact on the company and its business.3 As part of this assessment, companies should consider a range of potential factors, including those that the SEC has emphasized in recent guidance, such as the following:
    1. Liquidity and expected financial resource needs. The SEC Chairman and Corp Fin Director’s statement emphasizes liquidity and financial resource needs as key potential impacts, and explains that “detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to our investors and markets.
    2. Topic No. 9 questions. Review the “questions to consider” in the CF Disclosure Guidance: Topic No. 9 (March 25, 2020), available at and disclose information on such items to the extent material.4 These questions are helpful for the purpose of both disclosure and conducting diligence on what potential impacts a company faces with respect to COVID-19.
    3. Impact on operations, worker health and well-being, and customer safety. COVID-19 may significantly impact operations, including as a result of company efforts to protect worker health, well-being and customer safety. The impact of company actions and policies in this area may be of material interest to investors, and the SEC Chairman and Corp Fin Director encourage disclosures that address that interest.
    4. CARES Act or similar government programs. Companies that may be receiving financial assistance under the CARES Act or similar government programs should consider appropriate disclosures related to this assistance in their Q1 disclosures, including with respect to the nature, amounts and effects of such assistance.
  • Prioritize financial statement disclosure and considerations. The SEC Chief Accountant recently issued a statement emphasizing the importance of high-quality financial reporting in light of the significant impacts of COVID-19.5  Some of the many accounting areas that may involve significant judgments and estimates include, among other items: fair value and impairment considerations; debt modifications or restructurings; going concern; subsequent events disclosure; leases; hedging; and income taxes. For example: 

1. Going concern assessment. On a quarterly basis, companies should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about their ability to continue as a going concern within one year after the date of the financial statements.6 If impacts of the COVID-19 pandemic raise substantial doubt about this ability, companies need to include appropriate disclosure, including their plans to alleviate such doubts.

2. Subsequent events disclosure. Companies should carefully consider disclosure with respect to COVID-19 impacts in the subsequent events section of their financial statement notes. As companies approach their 10-Q filing dates, they should be evaluating and assessing developments in real time with respect to the pandemic and determining appropriate disclosure in accordance with US GAAP. 7

  • Do not hide discussions of COVID-19: Because investors are “thirsting to know” where your company stands, consider beginning your MD&A with a discussion of COVID-19-related impacts to your business on a current and forward-looking-basis. As the SEC has repeatedly emphasized, MD&A does not only focus on historical results, but it must also “specifically focus on known material events and uncertainties that would cause reported financial information not to be necessarily indicative of future operating performance or of future financial condition.”8 Moreover, as a reminder, companies should assess any appropriate COVID-19-related disclosure that they may be required to make at the time of the 10-Q filing in light of Rule 12b-20,9 which requires such “further material information as may be necessary to make the required statements” made by a company in its 10-Q, in light of the circumstances under which they are made,to be“not misleading.”
  • Be mindful that forward-looking disclosures must be made in good faith and on a reasonable basis. Consider the company’s approach to any previously issued guidance.
    1. Any time a company discloses quantitative or qualitative forward-looking information, including forward-looking disclosures related to COVID-19, such disclosure must be made in good faith and upon a reasonable basis. In particular, SEC Chairman Clayton and Corp Fin Director Hinman acknowledged the challenges of providing meaningful forward-looking disclosures, noting that “estimates of the type we are requesting are unavoidably based on a mix of assumptions, including assumptions regarding matters beyond the control of the company.” They encouraged companies, however, to “make all reasonable efforts to convey meaningful information” and suggested that management consider the “broad frameworks of some of the strategies that have been suggested, how following those strategies may affect their operations and whether that analysis would be of material interest to investors.
    2. For companies that have previously issued guidance that has not yet been addressed publicly, a key issue will be how to address their guidance in the Q1 earnings release and/or earnings conference call, as this will be a primary focus for investors. Many companies have already chosen to withdraw previously issued guidance. Although generally there is no “duty to update” previously issued guidance under the federal securities laws, as a practical matter, a company must carefully consider withdrawing or updating its guidance if it no longer has a good faith and reasonable basis for the guidance.
  • Use Q1 to provide COVID-19-related disclosures on a public basis in compliance with Regulation FD. By providing meaningful COVID-19-related disclosures in their upcoming 10-Qs, earnings releases and earnings calls, public companies will be providing this information on a public basis, rather than on a selective basis that would not be compliant with Regulation FD.10  Companies should be assessing the information that they may need to discuss with analysts, or that their investors may ask them about, in order to help assess whether adequate disclosure has been provided. Moreover, the SEC Chairman and Corp Fin Director noted that robust COVID-19-related disclosures this quarter will benefit companies because investors will then have more confidence that a company has a “well-thought-out and executable strategy for addressing the effects of COVID-19” and will therefore be “more willing” to provide credit and other financing to the company.
  • Confirm that risk factor disclosure is sufficiently broad to include all material risks related to COVID-19. All of the potential and current material impacts of COVID-19 should be covered in risk factor disclosures, and many of the risk factors previously disclosed in the 10-K may also be impacted, or otherwise heightened as a result of the COVID-19 pandemic. A number of companies have already disclosed a stand-alone COVID-19 risk factor. In addition, companies may consider including their entire risk factor section for the 10-K in the 10-Q with appropriate COVID-19 related updates or otherwise may consider just including and updating the specific risk factors from the 10-K that have been materially updated by COVID-19. For example, if a company relies on only one supplier and there is a risk factor addressing this, the company should be assessing whether the risk is heightened because of COVID-19.
  • Confirm that your risk factor disclosure clarifies which COVID-19-related impacts are hypothetical ones and which have already occurred. In recent SEC enforcement actions, the SEC has alleged that statements in a company’s risk factors were materially misleading because a company stated that an event only “may” or “could” occur, but the event was no longer hypothetical at the time of the disclosure.11  Accordingly, companies will need to confirm in real time prior to filing which impacts of COVID-19 are purely hypothetical and which ones have already occurred to a certain degree. Risk factor and MD&A disclosure should clarify whether a potential material risk has in fact occurred to some degree (whether or not the degree of occurrence is material on its own). Further, companies should avoid describing COVID-19-related mitigation efforts as part of the risk factors disclosure, other than to describe any risks related to such efforts and initiatives.
  • Update your forward-looking statement legend. Given the importance of forward-looking statements this quarter, it will be important to review forward-looking statement legends to ensure that a company is availing itself of the protections of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act, including by meeting the following requirements:
    1. First, specifically identify forward-looking statements. Forward-looking statements must be identified as forward looking statements. Accordingly, in the forward-looking statement legend included in the 10-Q and earnings release must specifically list the topics or terms used in the forward-looking disclosures related to COVID-19 to be able to identify such statements as “forward-looking.” For example, if you use the phrase “COVID-19 Impacts”, or use the terms “expect” or “believe” when discussing COVID-19 related forward-looking information, you should list these terms in your forward-looking statement legend. 
    2.  Second, accompany forward-looking statements with factors that may cause actual results to differ. Forward looking statements must be accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement”. For this quarter these factors should be updated to address forward-looking information related to COVID-19, and in order to “accompany” the forward-looking statements, they should be included in the same document as the forward-looking statements (i.e., in the 10-Q or the earnings release). In particular, the earnings release should provide a list of these updated factors in the forward-looking statement legend. In the case of the 10-Q, the filing should include the forward-looking statement legend with a list of these factors tailored to the forward-looking statements included in the 10-Q, and because the MD&A this quarter may include additional forward-looking information related to COVID-19, companies should consider including any relevant risk factors in the risk factor section and a cross-reference to this disclosure from the forward-looking statement legend. In addition to these factors, companies should make clear in their forward-looking statement legends that the information only speaks as of the date of the report or earnings press release, and that the company undertakes no obligation to update such forward-looking information.
  • Oral forward-looking statements. In the case of oral forward-looking statements on the earnings conference call, the call must include (1) an oral warning that actual results may differ materially from the forward-looking statements relating to certain topics, such as COVID-19 impacts, made on the call and (2) an oral statement referring listeners to a readily available written document, such as the Form 10-Q or earnings release, that contains adequate cautionary language with the factors that may cause actual results to differ materially from those in the forward-looking statements. If the 10-Q is not yet on file at the time of the earnings conference call, companies should confirm that the earnings release includes sufficient cautionary language with respect to the forward-looking statements on COVID-19 made on the earnings conference call, since relying on potentially outdated 10-K risk factor disclosure may not be sufficient for this purpose.
  • Disclosure controls must ensure that forward-looking statement safe harbors are included. The procedures described above should be followed for forward-looking information on COVID-19 impacts made in written or oral form, and a company’s disclosure controls and procedures should have a mechanism in place to verify that such safe harbor disclosures are made. Moreover, as SEC Chairman Clayton and Corp Fin Director Hinman note, “we encourage companies that respond to our call for forward-looking disclosure to avail themselves of the safe-harbors for such statements” and further note that “we would not expect good faith attempts to provide appropriately framed forward-looking information to be second guessed by the SEC.”



As companies finish closing their books on Q1 and turn to their disclosures, many will face one of the most challenging public reporting cycles in recent years. First-quarter disclosures will undoubtedly present challenges for public companies beyond the disclosure itself—from SEC reporting teams working remotely, to difficulties obtaining data and information needed for quarterly reports from business units around the world. Companies should therefore be starting as soon as possible to prepare their Q1 disclosures, for example, by holding committee meetings on a remote basis to confirm management’s approach to assessing, drafting and reviewing COVID-19-related disclosures, coordinating with business units to identify potential issues related to COVID-19 that impact a company’s disclosure, and coordinating with auditors and outside counsel to help strategize and confirm their approach to this historic reporting cycle.


1 The statement, “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19”, is available here.
2 See our Client Alert, “SEC Takes Additional Actions Helping Public Companies Address the Impact of COVID-19”, available here, which summarizes the SEC’s recent public filing relief and summarizes Disclosure Guidance Topic No. 9, including the need to start addressing financial reporting matters early this quarter.
3 This could include personnel in legal, finance, treasury, operations, and risk departments.
4  These questions include the following:
•  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? 
•  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? 
•  How has COVID-19 impacted your financial condition and results of operations? 
•  How do you expect COVID-19 to affect assets on your balance sheet and your ability to timely account for those assets?
•  Do you anticipate any material impairments (e.g., with respect to goodwill, intangible assets, long-lived assets, right of use assets, investment securities), 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?
5 See “Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19,” available here.
6 See FASB’s Accounting Standards Update No. 2014-15—Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. available here.
7 See FASB’s Accounting Standards Codification 855-10-50 – Subsequent Events – Overall – Disclosure, available here.
8 See Item 303 of Regulation S-K and Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations, available here.
9 See Rule 12b-20 of the Securities Exchange Act of 1934, as amended.
10 With respect to earnings calls, companies must give public notice a reasonable period ahead of the call to the public, including the date and time of the earnings call and instructions as to how to access the call.

11 For example, in September 2019, a major pharmaceutical company agreed to pay a $30 million penalty to the SEC for using hypothetical language. After a government agency informed the company that it had misclassified its most profitable product as a generic drug, the company’s risk factor disclosures in its annual reports continued to state that a government entity “may” take a position that is contrary to that classification. In other words, the company’s disclosures presented a risk that the government agency “could” disagree. The SEC concluded that using the term “may” was materially misleading because the company knew at the time that a government agency had in fact taken a contrary position. For more information, see here. In addition, in 2018 the SEC fined a major internet media company $35 million when it stated in the risk factors of its quarterly and annual reports that it risked a data breach when the company knew that it had experienced a data breach two years before those filings. Despite knowing that the company had already experienced a breach, the risk factors header stated: “If our security measures are breached, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.” (emphasis added). For more information, see here.

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