Global Regulators' Body Calls for Fair Disclosure by Listed Firms on Covid-19 Impact

Global body of capital market regulators IOSCO on Friday called for fair disclosure by all listed companies about the impact of COVID-19 on their operating performance, financial position and future prospects to help investors take informed decisions.

The International Organization of Securities Commissions (IOSCO) said in a statement it is important for investors and other stakeholders to have "timely and high-quality information" about the impact of COVID-19 on listed companies.

The Securities and Exchange Board of India (Sebi), which is also an IOSCO member, had last week itself issued an advisory asking all listed companies to make fair and timely disclosure of any material impact of the COVID-19 pandemic.

While Sebi has granted several relaxations to listed companies in terms of timelines for filing of various reports and disclosures due to the pandemic and the consequent lockdown, the regulator said any gap in information about operations of a listed company can lead to distortions in the market.

Sebi said it is important for all listed firms to ensure that all available information about the impact of these events on the company and its operations is communicated in a timely and cogent manner to its investors and stakeholders.

IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. Its members regulate more than 95 per cent of the world's securities markets in more than 115 jurisdictions.

In its statement, IOSCO said the pandemic and the uncertainty it has caused have material implications for financial reporting and auditing, including issuers' disclosures of current and reliable information material to investment decisions.

Current circumstances may make disclosures outside the financial statements more challenging and hence make high quality disclosures that much more important, it said.

IOSCO stressed on the importance of disclosure of the impact on amounts recognised, measured and presented in the financial statements.

Highlighting the importance of transparent and complete disclosures, IOSCI said in an environment of heightened uncertainty, disclosures should be entity-specific and transparent, particularly when involving significant judgments and estimates.

It further said interim financial information will require more robust disclosures of material information and management's response to changing circumstances.

IOSCO also reminded auditors of their responsibilities to report on key audit matters, including how the auditor addressed those matters.

It asked the listed companies to balance the flexibility provided by regulators by extending the period to file financial information with the responsibility to provide timely and comprehensive financial information that includes reasonable and supportable judgments.

In its May 20 circular on this issue, Sebi had said many listed entities have made COVID-19 related disclosures under existing regulations, primarily intimating shutdown of operations owing to the pandemic and resultant lockdowns.

Some listed entities have also provided information relating to actions taken towards sanitation and safety, but the number of entities that have disclosed the financial impact is small, it said.

Sebi said listed entities around the world have been making disclosures regarding the impact of the pandemic, including that on financial condition and results of operations, future operations, capital and financial resources, liquidity, assets, internal financial control over financial reporting and disclosure controls and procedures, demand for products/services, among others.

Giving an illustrative list, Sebi asked the companies to evaluate the impact of the COVID-19 pandemic on their business, performance and financials, both qualitatively and quantitatively, to the extent possible and disseminate the same.

"When listed entities disclose material information related to the impact of COVID-19, they should not resort to selective disclosures, keeping in mind the principles governing disclosures and obligations of a listed entity," Sebi said, while referring to the regulations regarding disclosure and transparency.

The illustrative list of disclosures required include impact of the pandemic on the business, ability to maintain operations, factories or units functioning and closed down, schedule for restarting operations, estimation of the future impact of COVID-19 on operations, as also impact on capital and financial resources, profitability, liquidity position, assets and on ability to service debt and other financing arrangements.