On May 3, 2022, the Securities and Exchange Commission announced that companies may be obligated under the federal securities laws to disclose how Russia’s invasion of Ukraine has impacted their businesses. Consequently, the SEC’s Division of Corporation Finance shared a sample letter illustrating the types of comments that the Division may send to companies based on the facts and circumstances they provide.
To satisfy these disclosure obligations, the SEC reports that companies may have to provide detailed information regarding the following:
1. The company’s overall exposure to Russia, Belarus, or Ukraine including its operations, employee base, investments in these countries, securities traded in Russia, the impact of Russian or Belarusian sanctions, or any legal/regulatory uncertainties associated with operating in or exiting Russia or Belarus;
2. The company’s reliance on Russian or Ukrainian goods or services, including its reliance on countries that support Russia in some cases;
3. Actual or potential supply chain disruptions; or
4. Business relationships, connections to, or assets in Russia, Belarus, or Ukraine.
The SEC also suggests that companies may have to reflect in their financial statements any hindrances or impairments experienced since the Ukrainian invasion began such as asset losses or changes in inventory valuation, exchange rates or contracts with customers, and, regardless of whether a company has operations in Russia, Belarus, or Ukraine, disclose information such as heightened cybersecurity risks or ongoing supply chain challenges if warranted.
The SEC also urges companies’ managers and executives to consider how these matters might impact their disclosure controls and procedures, the effectiveness of internal control over financial reporting, and the role that the board of directors might play in risk oversight matters such as decisions to continue or halt company operations or investments in Russia and/or Belarus.
The Division encourages companies to contact the industry office responsible for the company’s filing if they have any questions regarding these proposed disclosures.