May 4, 2022

Ukraine Crisis: Corp Fin Issues Sample Comment Letter

We continue to worry for the people of Ukraine and the various consequences of the Russian invasion. We know the Staff at the SEC is also considering the disclosure implications – John blogged a few weeks ago about a comment letter exchange, and he shared a prediction that other companies could receive similar comments. Yesterday, Corp Fin posted this sample letter to companies regarding the business impact of the invasion. The Staff identified several topics for which companies should provide detailed disclosure, to the extent material or otherwise required:

(1) 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 individuals or entities, or legal or regulatory uncertainty associated with operating in or exiting Russia or Belarus,

(2) direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia,

(3) actual or potential disruptions in the company’s supply chain, or

(4) business relationships, connections to, or assets in, Russia, Belarus, or Ukraine. The financial statements may also need to reflect and disclose the impairment of assets, changes in inventory valuation, deferred tax asset valuation allowance, disposal or exiting of a business, de-consolidation, changes in exchange rates, and changes in contracts with customers or the ability to collect contract considerations.

In addition, since Russia’s invasion of Ukraine, many companies have experienced heightened cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities regardless of whether they have operations in Russia, Belarus, or Ukraine that warrant disclosure.

Companies also should consider how these matters affect management’s evaluation 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 risk oversight of any action or inaction related to Russia’s invasion of Ukraine, including consideration of whether to continue or to halt operations or investments in Russia and/or Belarus.

This is a rapidly evolving area. Corp Fin’s sample comment letter follows a rulemaking petition last week that asked the SEC to require disclosure about business dealings in and with Russia and Belarus. For guidance on the financial statement impacts that may warrant disclosure, check out Dave’s blog last week. In our “Ukraine Crisis” Practice Area, we’re posting lots of resources for members who are navigating these issues.

Liz Dunshee