SEC Chief Accountant Sagar Teotia today issued a Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19, which stressed the importance of continuing to provide high-quality financial information for investors and other stakeholders in these uncertain times. In his statement, among other topics, Teotia addressed estimates and judgments as well as temporary relief provided under the CARES Act that allows banks and other financial institutions to suspend compliance with two provisions of GAAP, including CECL. Teotia emphasized that the Office of Chief Accountant is available for consultation and encouraged companies and others with questions as a result of COVID-19 to contact OCA.

One topic of note was the challenge of making significant judgments and estimates in light of the acute uncertainty resulting from COVID-19.  Consistent with OCA’s historic positions, Teotia confirmed that OCA has “not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective.” Teotia identified the many accounting areas that may involve significant judgments and estimates in light of the evolving status of COVID-19, and stressed the importance of providing the required disclosures for estimates and judgments:

  • Fair value and impairment considerations;
  • 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).

Teotia also noted that the CARES Act allows certain entities to temporarily defer or suspend the application of two provisions of GAAP.  First, the CARES Act provides temporary relief for insured depository institutions, bank holding companies and their affiliates from compliance with the new FASB standard for Measurement of Credit Losses on Financial Instruments, including the current expected credit losses methodology for estimating allowances for credit losses, known as CECL.  In addition, the CARES Act provides that a financial institution may temporarily elect to suspend troubled debt restructuring accounting under GAAP.  Teotia confirmed that, if these entities conclude that deferring or suspending these provisions as permitted under the CARES Act is “deemed to be in accordance with GAAP,”  then the “staff would not object to the conclusion.” Accounting speak at its best! 

For guidance on other legal, regulatory and commercial implications of the COVID-19 pandemic, see our Cooley coronavirus resource hub.

Posted by Cydney Posner