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Law360, London (May 30, 2020, 1:58 AM BST) -- An international standards group for the securities market said Friday that although the COVID-19 pandemic may cause difficulty for companies in making financial statements, it nonetheless called on corporations to try to be "fair" and transparent in their disclosures.
The board of the Madrid-based International Organization of Securities Commissions, or IOSCO, released a statement acknowledging the impact of the novel coronavirus on businesses and encouraged issuers of securities to still make their best assessments in explaining how the crisis affects them.
"Current circumstances may make disclosures outside the financial statements more challenging and hence make high quality disclosures that much more important," the group said.
"IOSCO notes that, particularly in an environment of heightened uncertainty, it is important that financial reporting include disclosures that provide an adequate level of transparency and is entity-specific regarding uncertainties inherent in judgments and estimates," the group added.
The international body said corporations making disclosures should not limit themselves to boilerplate discussion on the impacts of the disease, but also explain how COVID-19 affects their cash flow and financial position, how their strategy has changed due to the crisis and what they're doing to mitigate its impact.
"Telling the story in a clear manner through the financial statements and management commentary is important to investors' information needs and confidence," IOSCO said.
The body said that the use of non-Generally Accepted Accounting Principles may help provide useful insight into a company's financial performance, encouraging issuers of securities to be aware of those accounting methods that are not potentially misleading.
However, IOSCO said one example of a misleading disclosure could be where a company says a change is due to COVID-19 but doesn't specify how it is related.
"Additionally, characterizing hypothetical sales and/or profit measures (e.g., had it not been for the effect of COVID-19 the company's sales and/or profits would have increased by XX%) as non-GAAP financial measures would not be appropriate," it said.
The IOSCO board is the group's governing and standard-setting body and made up of 34 securities regulators, including those of the U.K., the U.S, France, Hong Kong and Japan.
--Additional reporting by Najiyya Budaly. Editing by Michael Watanabe.
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