SEC Chief Accountant Sagar Teotia issued a recent statement stressing the importance of high-quality financial reporting during the COVID-19 crisis. Many companies are struggling with the reporting implications of COVID-19, and the statement acknowledges that the current environment requires a number of difficult judgment calls:
We recognize that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates. Certain judgments and estimates can be challenging in an environment of uncertainty. As we have stated for a number of years, OCA has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective.
Teotia’s statement highlights some of the areas that may involve significant judgments and estimates, including fair value and impairments; leases; debt modifications or restructurings; hedging; revenue recognition; income taxes; going concern; subsequent events; and adoption of new accounting standards (e.g., the new credit losses standard). The statement goes on to emphasize the importance of required disclosures about judgments and estimates involving these and other issues.
The statement also says that financial institutions availing themselves of certain provisions of the CARES Act that allow them to avoid compliance with FASB pronouncements on accounting for credit losses and troubled debt restructurings during the period of the COVID-19 emergency will be regarded by the SEC as being in compliance with GAAP.
Cydney Posner’s recent blog about the Chief Accountant’s statement has a sidebar pointing out that while the new credit losses standard applies to any business that extends credit to customers, only financial institutions are exempt from compliance under the CARES Act – and those other businesses are going to face some significant compliance challenges during the current crisis.
-John Jenkins, TheCoporateCounsel.net April 6, 2020
