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SEC Flags Going Concern Reporting Ahead of Filing Season (1)

June 23, 2020, 7:49 PMUpdated: June 23, 2020, 9:53 PM

The SEC on Tuesday told U.S. companies to pay close attention to risks that may threaten their ability to survive the next 12 months as they gear up to report on a full quarter of business operations hamstrung by the pandemic.

Going concern warnings aren’t just the responsibility of auditors, rather management has to consider whether conditions pose a substantial doubt that the company could continue operating and meet its obligations a year out, Sagar Teotia, chief accountant of the Securities and Exchange Commission, said. Teotia’s advice was in a note posted on the regulator’s website before the start of the second-quarter filing season.

  • Teotia reminded companies that they must tell investors what risks threaten their ability to continue operating, the significance of those conditions, and management’s plans to mitigate those risks. Insufficient disclosures or those that don’t comply with accounting standards may trigger more scrutiny from auditors as part of their quarterly reviews.
  • A number of companies have issued going-concern notices since March, including Dave & Buster’s Entertainment Inc., Hertz Global Holdings Inc., and Norwegian Cruise Line Holdings Ltd. The number of warnings is expected to rise as the pandemic stretches into summer, reducing revenue and causing cash flows to dry up, further limiting the ability of businesses to make debt and lease payments that come due.
  • Companies may also need to update disclosures if they made significant changes to their financial reporting controls to reflect the new work-from-home environment or new risks created by changes to the company’s operations, Teotia said.
  • The Division of Corporate Finance issued its own disclosure guidance focused on how companies are dealing with liquidity risks amid the pandemic. The note urged companies to consider the cost of capital, agreement terms for supply chain financing or reverse factoring, and changes to payment terms for customers. Companies should also be prepared to discuss how government relief such as loans or tax deferrals will impact their cash flow and accounting estimates, and any uncertainties in apply the accounting guidance.
(Updates with Corporation Finance guidance in paragraph 6. )

To contact the reporter on this story: Amanda Iacone in Washington at

To contact the editors responsible for this story: Jeff Harrington at; David Jolly at