NEW YORK, NEW YORK – FEBRUARY 24: Anchor Maria Bartiromo interviews chairman of the U.S. Securities … [+]
The federal watchdog agency that monitors the financial disclosures of public companies said Wednesday it was offering an extension for some filings as corporations grapple with global efforts to contain COVID-19.
The U.S. Securities and Exchange Commission said companies can seek a 45-day extension for filings due between March 1 and July 1. Wednesday’s announcement amends an earlier order announced March 4 that relaxed deadlines for reporting requirements between March 1 and April 30.
The SEC’s move extends the window for relief through a second three-month reporting period. Public companies are required to submit earnings results every three months, as well as an extensive annual report, where they detail critical financial information such as revenue, profit and any circumstances or incidents that impacted business during the period.
“Health and safety continue to be our first priority,” said SEC Chairman Jay Clayton, in a statement announcing the measure. “These actions provide temporary, targeted relief to issuers, investment funds and investment advisers affected by COVID-19.” A call seeking further comment wasn’t immediately returned.
The responsibility of closing a businesses’ books and completing financial disclosures falls squarely on the CFO, who typically is the C-Suite leader signing off on closely tracked quarterly results, among other documents.
The social-distancing and quarantining measures put into place to slow the novel coronavirus also complicate the process of putting together these SEC disclosures. The audit of a company’s financial results — the independent verification of a firm’s statements — is one such key process in the production of annual reports, for example, that can require an on-site review of inventory or in-person visits to go over transactional records.
“A dispersed workforce is the principal concern,” said Christopher Wright, a managing director for Protiviti, a consultancy, and a former audit partner at KPMG, one of the so-called Big Four accounting and audit firms. “Many finance organizations are not working in their offices and operating their financial reporting function from a distance.”
Wright noted that companies that seek the filing extension have to explain why they need the extra time, in a filing. On Wednesday, the SEC also provided guidance on assessing the impact of the global pandemic. The SEC advice was primarily a checklist of questions for finance chiefs to keep in mind.
“The capital markets are always well served by accurate and timely financial reporting, which form the basis for many investment decisions,” Wright said.
Dennis Gannon, a vice president at research and advisory firm Gartner, has started a weekly survey of CFOs to discuss emerging COVID-19 related issues. In the first survey in the series, Gartner found that 37% of respondents believed all key closing processes could be performed “off-premises.” Another 53% said most of these tasks could be done away from headquarters.
“Most CFOs don’t expect to avail themselves of the SEC’s extension at this time,” Gannon said. “Most are expecting to produce their reports on time.” Finance chiefs are looking to equip their staff and auditors with equipment to do their work remotely, with some experimenting with platforms like Facetime to do in-person auditing functions from home, he said. The Gartner CFO report surveyed 200 finance chiefs from private and public companies on March 17.
Companies haven’t sought out the SEC extension in greater numbers because it’s not entirely clear what it takes to qualify for the relief, said Jay Knight, an attorney at firm Bass, Berry and Sims and a former attorney at the SEC’s division of corporation finance.
“I think it’s helping companies to have a relief valve for reports that are going to be due during that period,” Knight said. Yet “it’s unclear how broadly the (SEC) staff is interpreting the condition,” that’s required for the extension, he added. According to the SEC order, a company can seek the extended deadline if it’s unable to meet a deadline “due to circumstances related to COVID-19.” Knight added that companies likely want to avoid appearing like they are struggling to meet deadlines.
Auditors have a greater role to play in producing annual reports as opposed to quarterly earnings results, said Catherine Ide, senior managing director of professional practice and member services at the Center for Audit Quality, a nonprofit that represents public-company auditors. “Quarterly reviews are rigorous but annual audits are even more extensive,” she noted. Many large companies have already filed their annual reports, which means that the SEC action will likely be of greater use to smaller companies who have yet to turn in their annual filing.
“COVID-19 has affected every profession including the audit profession,” Ide said. Measures like the SEC extension “will help ensure that audit people remain healthy,” and the public has continued trust in capital markets and financial reporting, she added.