SEC highlights the need for top-quality financial reporting due to Covid-19

Federal Issues SEC Agency Rule-Making & Guidance FASB CARES Act Covid-19 Securities

On April 3, the SEC Office of the Chief Accountant (OCA) released a statement regarding “the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19.” In the statement, the SEC Chief Accountant states that capital markets cannot function optimally without the free flow of “high quality financial information” that enables informed decision-making from lenders, investors, and other stakeholders. The statement points out that accounting and financial reporting may be challenging due to Covid-19 and that financial institutions may have to make “significant judgments and estimates,” but that the OCA does not intend to oppose “well-reasoned judgments.” Accounting areas that may require these judgments and estimates include (i) “[f]air value and impairment”; (ii) “[l]eases”; (iii) “[d]ebt modifications or restructuring”; (iv) “[h]edging”; (v) “[r]evenue recognition”; (vi) “[g]oing concern”; (vii) “[s]ubsequent events”; and (viii) “[a]doption of new accounting standards.” Regarding auditing, the OCA advises that auditor independence is of paramount importance to financial institutions and notes its willingness to consult on these issues. The statement also emphasizes the OCA’s engagement with the Financial Accounting Standards Board and the Public Company Accounting Oversight Board, as well as with international accounting groups regarding issues created by Covid-19. Finally, the OCA encourages those involved in the financial reporting system to collaborate, and reiterates the OCA’s willingness to answer Covid-19 related questions.