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Investor guidance in the time of the COVID-19 pandemic

As Australia approaches the annual reporting season, listed issuers will be considering how to update the market about how they are travelling in the unprecedented circumstances that now confront the economy.  While the disclosure obligations are clear, how to apply them in the age of the COVID-19 pandemic is a journey into unchartered territory.  

As we have previously discussed, for many listed entities it is near impossible to accurately predict the financial impact of the constantly changing business environment. Consequently, the economic fallout from COVID-19 has materially heightened the risk of securities class actions based on alleged inadequate disclosure.

The expectations for Australian corporates are very high. Cases like the Myer case have affirmed the high expectations on Australian listed entities in meeting their continuous disclosure obligations. This will certainly track through to guidance about the underlying performance of ASX-listed businesses, for example ASX Guidance Note 8. Unfortunately, the temporary modifications to the Corporations Act 2001 (Cth), raising the threshold for breach of disclosure provisions won’t give directors much relief about how to disclose ‘known unknowns’ particularly as they relate to future performance.

In the context of periodic reporting – especially the release of audited accounts later this month – listed entities need to include a risk factor addressing COVID-19 in their reporting. This will include both risks that the business is experiencing at the time of the report as well as potential future risks.

ASIC has extended the deadline for listed entities to lodge financial reports by one month for certain balance dates up to and including 7 July 2020.

What to consider ahead of disclosure

Each organisation needs to try to tailor any disclosure about COVID-19 to their particular circumstance. Some entities have released earnings for the six months until 30 June this year and details of the provisions they will have to allow for as a result of COVID-19.

Boilerplate disclosure won’t be sufficient when discussing the impact that COVID-19 has had or may potentially have on the business. Each business will be differently affected by the pandemic and any one of the effects will include:

  • the effect on financial condition and results of operations;

  • the effect on capital resources, liquidity, ability to obtain financing, compliance with financial covenants and ability to service indebtedness;

  • the effect on the balance sheet and the valuation of assets;

  • potential material impairments;

  • the effect of remote work arrangements;

  • the effect of travel restrictions and border closures;

  • changes in demand for products or services; and

  • the effect on supply chain and logistics.

Clearly it will be relevant to explore the disclosures being made by peer organisations especially as a way to cross-check peer risk factor disclosures. ASIC has also produced information on areas of focus for financial reporting in the COVID-19 environment for the year ending 30 June 2020.

If the impact of COVID-19 is known, organisations should avoid the temptation to describe it as a hypothetical as doing so may be misleading.

The importance of considered and quality financial information 

In May the International Organization of Securities Commissions (IOSCO) published a statement of support, reminding corporates of the importance of disclosing high-quality financial information to investors.

Both ASIC and IOSCO acknowledge the substantial impact COVID-19 has had on the information found in financial statements of issuers and how they need to make significant judgments and estimates that will be subject to greater uncertainty than usual. Directors will be challenged to provide clear disclosure about the impacts on their business, risks, assumptions, strategies and future prospects in difficult times.

Listed entities will need to work hard to provide good information based on well-reasoned judgments and estimates, taking into account the impact of the pandemic and any governmental relief or support. Many Australian listed entities will need to consider how payments like JobKeeper, land tax relief and rent deferrals will be incorporated in their public disclosure.

The disclosure will also need to explain how COVID-19 has or is expected to impact the entity’s financial performance, financial position and cash flows. That will usually include dividend policies, capital costs, the ability to collect accounts receivable and the ability to satisfy accounts payable and other contractual liabilities, including credit facilities and lease liabilities, among other things.

More general issues will include how the business’ strategy has been modified to address the effects of COVID-19. In most cases previously provided guidance will have been withdrawn.

The financial report and Operating and Financial Review needs to explain the results and financial position as well as the risks, management strategies and future prospects. Future prospects are always difficult to manage but even more so in a COVID-19 context. For some entities, it will be impossible to make statements about prospects because of the uncertainty but this needs to be explained.

Both ASIC and ASX accept that issuers are preparing financial statements based on potentially imperfect information, in an uncertain and ever-changing environment. All that can be expected is for the directors to make well-reasoned judgements based on the best information available. As new information becomes available, consideration should be given to whether any judgements and estimates, and/or past disclosure need to be updated.

This publication is part of our insight series COVID-19: Navigating the implications for business in Australia and beyond. To get notified by email when new COVID-19 insights are released, please subscribe for updates here.



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This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.