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Financial Accounting

Companies Pass on Deadline Relief, Push to Give Investors Results

April 9, 2020, 8:46 AM

The maker of canisters for Clorox wipes and Gatorade bottles, like other public companies, could take advantage of the SEC’s pandemic-inspired reprieve of an extra 45 days to file its quarterly financial statement. But it won’t seek the relief.

“We know people are clamoring for information and the best way we can handle it, is try to provide our financial results as close to a normal timeframe as possible,” said Rich Tarapchak, corporate controller at Reynolds Group Holdings Ltd., a $10 billion global product packaging company.

Companies face a choice between taking extra time to work through all the financial disruptions caused by the coronavirus pandemic or cater to investors eager to know just how bad the first quarter was and how much worse the next quarter might be. Most companies, according to the National Investor Relations Institute, are expected to choose investors and stick to their original timetables.

The quarter ended on March 31 with most reports typically expected to be filed with the Securities and Exchange Commission by mid-May.

“Companies that can report in normal cadence should do so,” said Ted Allen, the institute’s vice president of strategic communications. “The longer you put it off, the more questions you’re getting from investors about how things look.”

Any Relevant Information Helps

As earnings season approaches, companies are crunching their first-quarter results while coping with staffing challenges—from furloughs to childcare—and a mountain of complex and unusual accounting work.

Investors hope that those companies that opt to delay filing still provide some information, even if preliminary, said Sandy Peters, head of financial reporting policy at the CFA Institute.

“We need relevant information and we need reliable information,” Peters said. “But the market can’t wait for the auditors to be certain, because by the time it is certain it may be irrelevant.”

Allen of the National Investor Relations Institute said many questions facing corporations involve cash flow and analysis of scenarios for how the virus could impact their operations.

Companies are increasingly updating their earnings guidance due to uncertainty surrounding Covid-19’s trajectory, with most either withdrawing previously issued guidance or noting it’s too early to estimate the impact. Almost a third of companies in the S&P 500 index had announced an update to their guidance as of March 31, according to research by investor relations advisory firm Corbin Advisors.

“It would be cavalier for most companies to estimate what 2020 will look like because of that level of uncertainty,” said Rebecca Corbin, founder and CEO of investor relations advisory firm Corbin Advisors.

The Securities and Exchange Commission has encouraged companies to keep investors informed even if they delay filing their auditor-reviewed first quarter reports. Chairman Jay Clayton said last week that companies that take advantage of the deadline relief may issue earning releases and provide other incremental information about changes to their business.

A flurry of interim filings known as 8-Ks over the last few weeks have covered staffing furloughs, idled restaurants and other facilities, and lease negotiations as companies move to shore up cash in an effort to weather the drop in demand, and revenue.

“Give the market financial information that’s high quality in as quick a time as you can,” said Phillip Austin, BDO USA LLP’s national assurance managing partner for auditing, of the SEC guidance.

An Uncertain Future

In addition to tackling pressing cash concerns, companies are also weighing whether to apply for any government assistance or other benefits as they work on those financial reports, Austin said.

That accounting work involves difficult judgments forecasting how quickly the business might recover, remeasuring assets such as goodwill, and considering how deferred tax assets could affect future cash flow, he said.

Tarapchak of Reynolds Group said uncertainty over shifting demand for its products, and how long before they may shift again, adds to the challenges for companies as they work to close their books and help investors understand what to expect next.

“It’s hard to forecast what the future is going to hold because we just don’t know at this point,” Tarapchak said.

To contact the reporters on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com; Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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