Adjustments to Required Disclosures in Reports in Light of the Coronavirus
As a result of the coronavirus’s significant economic impact on a broad sector of reporting corporations in the capital market, operating in different business fields, the Israel Securities Authority published a staff position paper on the consequences of the coronavirus crisis for the disclosure and financial reporting included in the 2020 first quarter report.
The ISA emphasized which disclosures are required in terms of COVID-19’s impact on reporting corporations. The paper addresses both the 2020 first quarter report and subsequent future reports. Such emphasis primarily concerns the disclosures required in the board of directors’ report under ISA regulations, as well as the disclosures required in the financial reports under the International Financial Reporting Standards.
In terms of the board of directors’ report, the ISA stipulated that the disclosure must be made clearly and in detail. It should address the specific circumstances of the reporting corporation and the field in which it operates. This is designed to allow investors to best assess the anticipated consequences of the crisis for the reporting corporation’s business, as the board of directors expects, as well as the plans for coping with such consequences.
In terms of the BOD report, the ISA stipulated that the disclosure must be made clearly and in detail. It must also address the specific circumstances of the reporting corporation and the field in which it operates. This is designed to allow investors to best assess the anticipated consequences of the crisis for the reporting corporation’s business, as the board of directors expects. It also allows investors to make plans for coping with such consequences.
The reporting corporation must include in the BOD report, inter alia, the significant risks and exposures caused by the coronavirus crisis. It also must include the ways in which the company is handling them; disclosure of the specific implications of the crisis for the outcomes of the corporation’s activity, including income, costs, and profitability, and the actions taken by the reporting corporation in order to manage such implications; an analysis of the primary operational and quantitative indexes management used to evaluate the crisis’ impact on the performance and operational goals of the reporting corporation; disclosure of the consequences of the crisis on the reporting corporation’s financial state, liquidity, financial strength, the funding sources at its disposal, and its ability to make payments on any debts; etc.
The disclosure of the virus’s effects on the reporting corporation’s business must be made and updated up until close to the publication date of the BOD report. Additionally, it must also address the anticipated future impact of the virus on the reporting corporation’s business and the corporation’s plans to address this impact with a view to the future.
Concerning financial reports, the Israel Securities Authority stipulated that reporting corporations must also include expanded disclosures on significant changes that have occurred in their financial and operational states due to COVID-19.
This includes the requirement that the reporting corporation examine, inter alia, the impact of the coronavirus crisis on the reporting corporation’s expectation of its ability to continue to operate as a live business; events that occurred after the date of the reporting and whether they require coordination; the impact on measuring aspects of assets and obligations in the monetary, financial, and non-financial reports – including measuring the fair value of non-traded assets and the decrease in value of tangible and non-tangible assets; the impact for government grants and for payments to and benefits for employees; and the impact on the measurement of delayed taxes.
We note the Israel Securities Authority recognizes that including disclosures and information in the BOD report and the financial reports on matters not within the reporting corporation’s control constitute predicting future-facing information. Therefore, reporting corporations may make use of the requirements listed in the Securities Law for protection from future-facing information.
For a link to the full position paper, click here.