If anyone is having trouble locating guidance and commentary about the impact of covid-19 on financial reporting…
…it’s only because they’re not looking hard enough. In Canada, to name a couple, there’s the regulatory covid-19 information hub, and CPA Canada’s website of covid-19 information resources, the latter of which leads to dozens of other links. By the way, you may notice that I’ve taken to referring to the disease in lower- rather than upper-case form. I first saw this approach actually on the IFRS Foundation’s website, where it struck me as rather quirky, but then I came to like it as some vague gesture of resistance (I don’t know if that’s the IFRS Foundation’s thinking necessarily). Perhaps the capitalization is more scientifically correct though. On a related train of thought, here’s some direction from the Associated Press stylebook:
- COVID-19, which stands for coronavirus disease 2019, is caused by a virus named SARS-CoV-2. When referring specifically to the virus, the COVID-19 virus and the virus that causes COVID-19 are acceptable.
- But, because COVID-19 is the name of the disease, not the virus, it is not accurate to write a new virus called COVID-19. Also incorrect are usages such as COVID-19 spreads through the air; scientists are investigating how long COVID-19 may remain on surfaces; she worries about catching COVID-19. In each of those, it should be the coronavirus, not COVID-19.
- Do not shorten to COVID, even in headlines, unless part of a quotation or proper name.
- In stories, do not refer simply to coronavirus without the article the. Not: She is concerned about coronavirus. Omitting the is acceptable in headlines and in uses such as: He said coronavirus concerns are increasing.
I’m sure he did. Anyway, the Board of the International Organization of Securities Commissions (IOSCO) also recently issued a public statement to encourage fair disclosure about the impact of covid-19. As summed up in the accompanying news release, this:
- Reiterates the importance of disclosure of the impact on amounts recognized, measured and presented in the financial statements.
- Highlights the importance of transparent and complete disclosures, noting that in an environment of heightened uncertainty, disclosures should be entity-specific and transparent, particularly when involving significant judgments and estimates.
- Restates that in the current environment, it is important that issuers are mindful of the elements of reliable and informative non-GAAP measures.
- Notes that interim financial information will require more robust disclosures of material information and management’s response to the changing circumstances.
- Reminds auditors of their responsibilities to report on Key Audit Matters (KAM), including how the auditor addressed the matters.
- Encourages issuers to balance the flexibility provided by regulators extending the period to file financial information with the responsibility to provide timely and comprehensive financial information that includes reasonable and supportable judgments.
As I read it, the last bullet is saying that just because regulators make a filing extension available doesn’t mean that issuers should take advantage of it if they don’t need to. I wrote before that however inevitable they may be, I see such extensions as a step that will damage the credibility and perceived necessity of periodic financial reporting in the long run. In Canada, as I publish this a third of the way through June 2020, there are still some calendar-year-end entities that have yet to file their audited December 31, 2019 financial statements, raising the question, as I previously put it: if formal financial information isn’t necessary to support trading during one of the most volatile and risk-laden periods in memory, then why would it be so necessary at any other, calmer time?
But all the more important then that when delayed financial statements and related commentary are finally released, they’re actually good. To cite one more source, here’s how the European Securities and Market Authority (ESMA) summarized its recommendations for interim management reports:
- the impact that the covid-19 pandemic had on their strategic orientation and targets, operations, financial performance, financial position and cash-flows (in particular, details of the issuer’s liquidity position and its liquidity risk management strategy, decrease of revenues, disruptions in supply chains and/or production);
- measures taken to address and mitigate the impacts of the covid-19 pandemic on their operations and performance and their progress/state of completion (including, but not limited to, information of whether issuers have applied or are considering to apply for public support measures, details regarding the nature, amounts and conditions of such assistance, the planned renegotiation of major contracts); and
- where available, the expected future impact on issuers’ financial performance, financial position and cash-flows, related risks and contingency measures planned to mitigate the expected future impact and risk and uncertainties identified.
That seems to cover it pretty well in summary: what’s the damage done, what are we doing about it, how do we expect to come out of it, and how sure can we be of that. The biggest financial reporting crime right now (and I could have capitalized that) would be to say nothing at all, even if current disclosure only amounts to acknowledging the extent of what’s unknown and perhaps unknowable…
The opinions expressed are solely those of the author