In addition to considering tariffs and tax law changes in drafting risk factors, MD&A and financial statement notes, this Fenwick alert highlights foreign currency exchange risk as another topic to be mindful of when preparing your second quarter Form 10-Q.

As of June 30, the U.S. dollar index was down ~10.8% this year. In light of this significant decrease, companies should review their disclosures about foreign currency exchange risk. For example, some companies include a statement that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on their operating results. With the value of the U.S. dollar decreasing by 10%, companies should evaluate the continued accuracy of this statement.

Non-SRCs may want to take a look at their 10-K disclosures under Quantitative and Qualitative Disclosures about Market Risk. Here’s a reminder from our immensely helpful “Market Risk of Derivatives Disclosure” Handbook.

Under Item 305(c), when preparing a Form 10-Q, companies need to assess their outstanding market risk disclosure to determine whether there have been material changes since the end of the most recent fiscal year. If so, disclosure under Item 3 of Form 10-Q is necessary including discussion and analysis so that investors can assess the sources and effects of those material changes as noted in Question 112.01 of Corp Fin’s Regulation S-K CDIs. If there haven’t been any material changes during the last quarter, disclosure under Item 305 is not required in that Form 10-Q.

All of our handbooks are indispensable, but our “Market Risk of Derivatives Disclosure” Handbook is one I wish I had known about much earlier in my career. If you had asked me to pick a least favorite item of Regulation S-K as an associate, when I was regularly doing form checks, I’m sure I would have said Item 305. The Handbook acknowledges that “this Item is one of the least understood disclosures—and the mechanics of writing the disclosure can be mysterious.” It also says these disclosures become more important when there is volatility in exchange rates.

– Meredith Ervine