Whatever you may think of the Trump Administration’s policies, you have to admit that these folks are positively elite when it comes to generating new risk factor disclosure topics. Anyway, as you sit down to draft or review upcoming Form 10-Q filings, here are some resources that you may find helpful in addressing the disclosure implications of the Iran conflict:

PwC Report on Financial Reporting Implications of Geopolitical Conflict. Among other things, PwC addresses the conflict’s implications on fair value determinations, including the possibility of impairment charges and inventory write-downs, whether expected insurance recoveries can be booked as a receivable, how payments to displaced employees should be accounted for, and the implications of exposure to affected customers and volatility in foreign currency and capital markets.

The memo also highlights various S-K line-item disclosures that may be implicated by the conflict, including Item 303 (MD&A) and Item 105 (Risk Factors). Here are some of the specific risks that the memo suggests companies consider:

– The direct or indirect impact on liquidity, including the inability to transfer funds into affected regions for various purposes (e.g., paying employees, suppliers) or repatriate assets due to banking or exchange restrictions; this includes payments from third parties, subsidiaries, and affiliates

– The direct or indirect impact on operations for companies selling into or obtaining products or commodities from affected regions and other impacted territories

– Supply chain disruptions or increased commodity prices

– The loss of key customers or suppliers

– The impact of inflation, considering operations in affected regions as well as the global implications

– The risk of cyberattacks

– Impairments of operations impacted by the conflict (e.g., potential expropriation of operations)

– Impacts on stock price (e.g., due to investor sentiment related to a company maintaining operations in affected regions or economic and market implications resulting from the conflict)

Sidley Restructuring Update: Iran, the Strait of Hormuz, and the Distress Risks Ahead. Sidley addresses the direct and indirect disruptions that may result from the war, including energy price spikes, shipping disruptions, supply chain issues affecting various chemicals, the risks of potential Iranian retaliation, and the risks of redirected government funding in the event of a long-term conflict. The memo also identifies the specific industry sectors likely to be most affected by the hostilities. Here are some of the key takeaways:

– Public companies should reassess their risk disclosures, including whether acute developments warrant updated risk factors, management discussion and analysis reporting, or a Form 8-K. Management teams should also consider whether board-level decision making is calibrated for a fast-moving geopolitical event.

– Public and private companies should assess near- and medium-term liquidity against assumptions of higher energy and input costs, shipping delays, weaker demand, and no near-term rate relief. That review should examine maturities, covenants, revolver availability, and triggers for engaging creditors or sponsors before markets deteriorate.

– Companies should anticipate that financial stress from a prolonged Iran conflict may catalyze creditor groups and other stakeholders to organize, with lenders, bondholders, trade creditors, and sponsors seeking to protect their positions amid deteriorating financial conditions.

Finally, there’s one more resource I recommend to help you keep your perspective in these challenging and uncertain times. It comes from Abraham Lincoln, who knew a thing or two about challenging and uncertain times. In 1859, Lincoln gave a speech at the Wisconsin Agricultural Society. Here’s an excerpt from the speech’s final paragraph:

It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: “And this, too, shall pass away.”

Hang in there, everyone. This too shall pass away.

– John Jenkins