The SEC has published an illustrative letter which contains sample comments that the Corporate Finance Division may direct to companies based on their specific facts and circumstances related to Russia’s invasion of Ukraine and related supply chain issues.
The SEC notes that companies may have disclosure obligations under federal securities laws related to the direct or indirect impact that Russia’s invasion of Ukraine and the international response has had or may have on their activities. To meet these obligations, the Corporate Finance Division believes that companies should provide detailed information, to the extent material or otherwise required, about:
- direct or indirect exposure to Russia, Belarus or Ukraine through their operations, employee base, investments in Russia, Belarus or Ukraine, securities traded in Russia, sanctions against Russian or Belarusian persons or entities, or legal or regulatory uncertainty associated with operating in or leaving Russia or Belarus,
- direct or indirect dependence on goods or services from Russia or Ukraine or, in certain cases, countries favorable to Russia,
- actual or potential disruptions to the Company’s supply chain, or
- business dealings, connections or assets in Russia, Belarus or Ukraine.
The SEC also notes that financial statements may also need to reflect and disclose impairment of assets, changes in inventory value, valuation allowance for deferred tax assets, disposal or exit of a business, deconsolidation, changes in exchange rates and changes in contracts with customers or the ability to collect contractual consideration. In addition, since Russia’s invasion of Ukraine, many companies have faced heightened cybersecurity risks, increased or persistent supply chain issues, and price volatility. commodities trading, whether or not they have operations in Russia, Belarus or Ukraine that warrant disclosure.
The SEC urges companies to consider how these issues affect management’s assessment of disclosure controls and procedures, management’s assessment of the effectiveness of internal control over financial reporting, and the role of the board of directors in monitoring the risks of any action or inaction related to the invasion of Russia. of Ukraine, including consideration of the continuation or termination of operations or investments in Russia and/or Belarus.