By Tom Zanki

Law360 (December 4, 2020, 10:57 AM EST) -- Regulators should consider increasing enforcement to ensure that corporate disclosures detailing risks caused by the coronavirus pandemic meet a consistent level of quality, an accounting professor told a U.S. Securities and Exchange Commission panel.

Wharton professor Daniel Taylor said Thursday that his research noted that companies of certain industries have experienced similar shocks in terms of stock drops resulting from the pandemic, but the informativeness of their disclosures have varied. He suggested regulators focus attention on this matter to prevent a "race to the bottom" in terms of reliability.

"Without robust enforcement, there is not going to be any minimum standard set by the [SEC] and there will be a race to the bottom," Taylor, an accounting professor at the Wharton School of the University of Pennsylvania, told the SEC's Investor Advisory Committee.

The committee, which advises the SEC on policies impacting investors, invited experts to address the quality of corporate disclosures since the pandemic and to recommend whether improvements are needed. Taylor said 99.6% of companies included a mention of the pandemic's impact on their business by late May. He said some were detailed, while others were boilerplate.

Taylor's research included a case study on the beverage industry, which found that Monster Beverage Corp. in March began disclosing risks to its supply chain. Taylor noted that Monster Beverage and Keurig Dr. Pepper Co. had numerous disclosures regarding the coronavirus by late May, while National Beverage Company didn't disclose anything until July in its annual report, which included a general statement regarding uncertainty caused by the pandemic.

Taylor suggested regulators consider whether more specific disclosure relating to the coronavirus is needed. The SEC can opt for a standardized approach that makes clear what information must be disclosed by all companies or a so-called principles-based approach that provides each issuer discretion to determine what is material based on their circumstances.

Asked by committee Vice Chair Heidi Stam what he would recommend, Taylor said "I personally would like to see more robust enforcement of existing principles-based disclosure."

The committee didn't take action Thursday, though it sometimes follows up with specific recommendations to regulators. The SEC will switch to majority-Democratic control with the incoming administration of President-elect Joe Biden and could adopt a more aggressive stance on enforcement matters.

Taylor said his research showed that companies that have struggled because of the coronavirus are generally providing more disclosure about the impact on their businesses. He said there are no signs that companies are "hiding bad information" that has resulted from the pandemic.

Earlier this year, SEC Chairman Jay Clayton urged companies to provide more forward-looking information in their disclosures explaining to investors how their operations are being affected by the pandemic. Clayton acknowledged that doing so is challenging, given the vast uncertainty.

This is somewhat of a contrast from most corporate earnings calls, which typically focus on reviewing past performance before offering any guidance about future expectations.

Sandra Peters, the senior head of global financial reporting policy at CFA Institute, noted that investors gravitate toward forward-looking information, especially when trying to navigate a crisis.

"We investors care more about the future than the past because we are trying to price what securities look like in the future," Peters told the committee at Thursday's meeting.

--Editing by Alyssa Miller.

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