In light of the Covid-19 financial difficulties facing many companies, Sagar Teotia, the Chief Accountant of the Securities and Exchange Commission (“SEC”), has released a statement on the “continued importance of high-quality financial reporting for investors.” This statement reminds reporting entities (i.e. public companies) that, under the generally accepted accounting principles, “management should consider whether relevant conditions and events, taken as a whole, raise substantial doubt about the entity’s ability to meet its obligations as they become due within one year after the issuance of the financial statements.” As such, managers should carefully evaluate Covid-19’s impact on their financial viability for the next year. Should managers decide that they need to make going concern disclosures, Teotia adds that these disclosures should include information about “the principal conditions giving rise to the substantial doubt, management’s evaluation of the significance of those conditions relative to the entity’s ability to meet its obligations, and management’s plans that alleviated substantial doubt.”
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Faruqi & Faruqi
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