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DHG Assurance Co-Managing Partner Heather Cozart joins host John Locke to discuss SEC regulations and internal controls in the current economy.



[00:00:09] JL: Welcome to today's edition of DHG's GrowthCast. I'm your host, John Locke, and at DHG, our strength lies in our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG's Growthcast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace.

Thanks for joining us as we discuss tomorrow's need today.

[00:00:42] ANNOUNCER: Views and concepts expressed by today's panelists are their own and not those of Dickson Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.


[00:00:58] JL: Today our guest is Heather Cozart. Heather is the managing partner of DHG's Atlantic Insurance Practice. She has over 20 years of experience in the public accounting and financial service industries. Early in career, Heather worked with the Security Exchange Commission. Her clients now include both private and publicly-traded entities ranging from community banks to large multibillion dollar national banks, broker dealers, specialty finance companies and professional services firms. Heather currently operates out of DHG's Raleigh Office.

Welcome, Heather.

[00:01:33] HC: Hey, John. Great to be here.

[00:01:36] JL: COVID-19 of course has had so many ramifications to companies including financial reporting. Heather, you serve clients that are public companies, and also earlier in your career, worked for the Security and Exchange Commission. So I thought it would be great to ask you some questions on what you are seeing as far as prepares of financial statements should keep in mind with respect to SEC reporting considerations. Let's start first with whether there has been any relief with respect to filing deadlines as a result of the COVID-19.

[00:02:07] HC: Yes, there is. This is actually covered under the order the SEC issued on March 25th, which actually updated some earlier relief of deadlines. In general, those registrants subject to filings under the Exchange Act, which are originally due between March 1st and July 1st have a 45 days extension.

Of course, the relief is conditional upon some factors. Number one, the reason the company needs a delay has to be tied to COVID-19. Just ramifications from that. The company would have to file an 8K or a 6K if you're a foreign private issuer no later than the original filing deadline indicating the information relating to the reasons why that it's relying on the SEC's order. Among other items mentioned in the order, they would also have to disclose what the estimated date that they would expect to file within that filing.

[00:03:04] JL: Well, that's definitely some relief, and I'm guessing much like we see it coming out of the state's stay-at-home regulations. This is something the SEC will continue to monitor. Could there still be changes?

[00:03:17] HC: I bet. Yes. As we always continue to see, this is an evolving situation, and the SEC has already indicated it will continue to monitor and consider whether any additional relief is needed, which everybody really is already doing. Every day, things are changing, deadlines moving around. So many unknowns at play. Yes, we would have to stay tuned to see that.

[00:03:41] JL: Is there anything that preparers should keep in mind as they think about disclosures within the files?

[00:03:47] HC: Oh, yes. There's actually a lot. Thankfully, the same day the SEC issued that order I was just describing, the division of corporation finance came out with CF disclosure guidance topic number 9. This describes their current views on disclosure and other items. Just think about risk factors and DNA. Footnote disclosures and subsequent events, safe harbor disclosures, all that.

This release really has a lot of great information as it relates to these required disclosures with respect to COVID-19, of course. I'd like to focus what's probably on most folk's minds. Periodic filings, especially with the first quarter just standing for calendar year fillers. Of course, the obvious topics that many people are probably already thinking of, such as what has been the impact on financial condition and results of operations and how will that affect future-operating results? Impact on capital and financial resources and what is the outlook? Ability to meet covenants of credit agreements and any material COVID-19 related contingencies.

But the guidance also touches upon some other items. Whether there are any potential impairments, think goodwill, intangible assets, right-of-use assets, investment, securities, any issues with supply chains. How may distribute their goods and services? Has there been impact from COVID-19 on that? What has been the impact on human capital resources and productivity? Always a hot topic, non-gap measures. The guidance includes important considerations if management chooses to disclose a non-gap financial measure or performance metric that adjust for COVID-19.

There are a ton of other items mentioned in topic number 9, but one interesting item to consider really is how has remote work arrangements adversely affected the ability to maintain the company's operations?

[00:05:44] JL: Yeah, that is interesting. Perhaps there could be a result in internal control considerations that really need to be considered, right?

[00:05:52] HC: Yeah, I'm glad you brought that up. Honestly, I believe if companies haven't already started addressing this as well, an evaluation of whether changes have already happened or may happen. There's a lot changing every day, but in this new virtual world, so many people are working from home. An evaluation needs to take place, because don't forget, item 4 for 10Qs and item 9A for 10Ks requires disclosure of any change in internal control over financial reporting occurring in the last fiscal quarter that has materially affected or reasonably likely to materially affect the company's internal control over financial reporting.

Highly, highly suggest analyzing as soon as possible. I worry if this becomes an afterthought that folks will be scrambling right before they're trying to file. It could result having the collaborate with others, think internal audit, external auditors just to make sure everybody concludes the same way of whether or not something did materially change, because that would affect your disclosure.

[00:06:59] JL: That's a lot to think about going into the next month or so.

[00:07:03] HC: It is, and for the United States, this really came at a time right at quarter ends. A lot of people scrambling right now. I do want to remind folks though, disclosures need to be tailored. I think we're going to see a wide-range. There's going to be some companies out there that this didn't have as big of an effect on their operations or internal controls or outlook as it's going to have on the other end of the spectrum. This is going to be a lot of impact in many different ways for many companies as well. It's really important not to do template wording, just embedding within there. All the disclosures really ought to be tailored to that company's specific situation.

The good news is there's guidance out there. I'm a big fan of frequent communication and collaboration with clients and suggest that repairs do the same with their auditors, legal counsel and their peers. Everybody is going through this right now, right? All new world for everybody. Really, just bouncing ideas off or seeing what others are doing. Start talking to folks now.

[00:08:09] JL: Great advice. Let's wrap up our discussion today. Let's think about what our listeners are trying to triage from all of this and maybe think about what would be the top three items that you would strongly encourage people to focus on and prioritize over the next several weeks and couple of months.

[00:08:34] HC: I first would tackle anything that's going to affect the financial statements that you need to file. As of the reporting date, is there any impairments you need to potentially look at and have to report for that reporting period and any of your significant estimates. You don't have the impact of what's going on affect that, because you're going to have to get that reported appropriately in there during close. Priority number one, which I'm sure folks are already addressing right now.

Believe it or not, number two would be getting inventory of potential changes in internal controls, because it could likely touch and affect many, many different processes. That could be time consuming. So getting a jump on that. Really, I would take that topic 9, guidance, and really do an inventory. Go through that guidance and think about how each of those pieces really relate to your company and go through and figure out what items that you're going to have really think about some good disclosure around. So that would be my third one.

[00:09:36] JL: Yeah, great. Well, that's wonderful advice for our listeners, and I can't tell you how much I appreciate you putting all that in perspective for us today, Heather. Thanks for being a part of this podcast.

[00:09:48] HC: My pleasure.

End of Interview

[00:09:52] JL: You've been listening to the DHG Growthcast with Heather Cozart, managing partner of DHG's Atlantic Insurance Practice. We hope that you now have a heightened sense of awareness around SEC regulations and required internal controls as we navigate through this COVID-19 economy.

I'm John Locke, your host, and I look forward to reconnecting with you again soon on an upcoming episode of DHG GrowthCast.

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