About a third of S&P 500 companies included the financial impact of the pandemic in their December quarter-end earnings, according to a recent report by the
Wall Street Journal. This included reduced revenues, restructuring costs and impaired assets as well as some savings with regard to travel, real estate and other pandemic-related items.
However, the article continues, the SEC will be paying close attention to non-GAAP adjustments made by companies with regard to pandemic costs, especially where those costs are recurring multiple quarters in a row or used to adjust revenue in a “misleading” way. The article quotes Credit Roundtable vice chair David Knutson as stating “companies should be used to operating under Covid-19 by now” and notes that the SEC has questioned companies that claim credit losses are due to Covid-19 (rather than other non-pandemic causes) without sufficient rationale.
Other adjustments that have come under scrutiny include excluding expenses without specifying what they were and adjusting operating income for pandemic-related impairment charges without also adjusting for the benefit of federal tax credits. The SEC made a statement in December of 2020 that its Division of Enforcement would be stepping up scrutiny of pandemic disclosures to ensure companies “speak accurately” regarding the impact of the coronavirus on business operations.
