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US Securities and Exchange Commission

With COVID-19 Challenges, Will Regulators Provide Delay for Companies Implementing New Rules?

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Soyoung Ho

With unprecedented challenges presented by efforts to contain the COVID-19 pandemic, the SEC in a series of actions in March 2020 provided public companies extra time in complying with certain rules, like pushing back the deadline when financial reports can be filed. But experts believe that going forward, regulators like the SEC and the PCAOB will likely consider delaying the effective dates of recently adopted rules.

“I think that’s certainly on their radar screen,” said Dave Brown, a partner with Alston & Bird LLP in Washington. “I know they have extended the comment period for various proposed regulation changes that have been out there. And I would assume that that’s the next logical step of ‘should we also delay the implementation of these rules, and what is going to be the impact of it.’”

Brown was referring to the SEC’s mid-March announcement that it will accept comment letters beyond the deadlines set for rulemaking proposals that were due to expire in March because of COVID-19, the respiratory disease caused by the novel coronavirus. Authorities around the world are currently trying to slow down the transmission of the novel virus, disrupting people’s movements and gatherings. Company employees have moved to telework in response. But it has also had a big impact on companies’ operations with an abrupt halt in economic activities.

The commission said that it will not take final action on pending proposals before April 24 in order to allow the public additional time to submit comments if necessary.

The SEC has been active in rulemaking in the past year, but the pandemic has disrupted normal operation. Some of the rules that have future effective dates are: rolled back requirements on auditor attestation of management’s assessment of internal control over financial reporting (ICFR), revised guaranteed debt offering disclosures, and swap risk mitigation techniques, just to name a few.

The PCAOB, for example, has two related standards that auditors of public companies have to implement: one on audits of accounting estimates, the other on the auditor’s use of specialists. The audit regulatory board has scheduled a webinar to help auditors implement the new standards on April 21. The audit regulator’s effort comes as it revised the audit standards in December 2018, which go into effect for audits of financial statements for fiscal years ending on or after December 15, 2020. With implementation efforts well underway among some firms, it is unlikely that the board will push back the effective date, however. The PCAOB staff has also actively been providing other implementation guidance.

Current Focus on Pressing Issues

Matthew Derba, a partner in CohnReznick LLP’s New York office and a member of the firm’s National Assurance Practice, said that while delaying the effective date of recently adopted rules may not be the main focus right now by regulators, companies will surely appreciate any delays provided.

“The focus [so far] has been on the reporting that has to occur. I think that they [regulators] have done the right thing,” Derba said. “Reporting entities and auditors are focused on a lot of other things that are impacting their businesses” at the moment.

“Their resources are going to be focused on complying with existing rules, there is a lot just from an accounting perspective… in terms of complying with existing standards that have to be included in public filings and so forth,” Derba added.

Companies Would Welcome Any Delay to Ease Burden

But with new rules, companies have to update their systems, including internal controls, provide training, among other extra efforts.

“Many people are working remotely. That kind of creates a tough environment to really redesign and develop internal controls” for revised requirements, Derba explained.

Congress and the administration have also been mindful about the difficulties companies face in following certain rules and regulations. For example, a $2 trillion stimulus package that was signed into law on March 27 gives large banks extra time to apply the FASB’s credit loss accounting rule.

Derba noted that it is also unclear how long the pandemic will last and what the ultimate impact will be, creating a lot of uncertainty.

“I think the moral of the story, I think delay would be a nice part of the relief efforts,” he said.

Alston & Bird’s Brown noted that if the SEC looks at delaying any effective dates of pending rules, he speculated that it would likely be on a case-by-case basis.

Moreover, the SEC’s rules often have one date for when the rules go into effect, but there is another date for when companies should start complying.

But “additional requirements or hoops that companies need to jump through, I have no doubt that they would feel relieved given everything else going on that this is one thing they can push off and not have it on their plates,” he said.

What About Investors?

In the meantime, investor protection advocates are likely to be supportive, but it would depend on the type of rule that gets pushed back.

“I haven’t heard anything for sure [about any delay being considered], but it would not surprise me if the commission pushed back implementation dates on pending new rules, such as Reg BI,” Barbara Roper, director of investor protection with the Consumer Federation of America, said. “I know some of the broker-dealer groups have been requesting that.”

New Reg BI, short for Regulation Best Interest, requires brokers to adopt an enhanced duty of care when marketing securities to retail investors.

“While I am not often sympathetic to firms’ last-minute requests for regulatory delays, these are not normal times,” said Roper, who serves on the SEC’s Investor Advisory Committee (IAC). “So, while we’d have to look at each matter separately, we’d be inclined to be supportive. Firms have their hands full keeping the financial system running and figuring out how to operate in an age of shelter-in-place and social distancing. I think that deserves their full attention.”

The SEC did not immediately respond to a request for comment.

 

This article originally appeared in the April 2, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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