SEC investigators are closely examining corporate disclosures and non-standard financial metrics to see if companies are using the coronavirus pandemic as an excuse to cover up overdue writedowns or lingering performance problems.
“We’re all very aware of the challenges that companies and individuals are facing during this time with regard to financial reporting, accounting, and auditing. We’re also very much aware of the history of economic downturns and how these situations can reveal past errors or frauds,” said Matt Jacques, chief accountant for the Division of Enforcement at the Securities and Exchange Commission, during a securities enforcement web event Tuesday.
- Accounting disclosures could make or break an enforcement case, Jacques said. Companies should document how they arrived at key estimates and other judgments that are some of the most complex areas of accounting including revenue, fair value and impairments, hedging, and leasing. Companies should tell investors how they changed their accounting policies or assumptions, he said.
- The use of non-GAAP metrics—measures that don’t comply with U.S. generally accepted accounting principles—will likely spike as companies look to compensate for the weak market and still keep investors up to date about their current outlook, Jacques said. “It’s really important to get information to investors,” he added. “We’re going to be on the lookout for people who are abusing those non-GAAP metrics or at least representing them in a way that is not transparent to investors.”
- Companies also should disclose any adjustments they make to non-GAAP figures or how their calculations differ from past reporting periods, he said.