Registrants may have disclosure obligations under the federal securities laws related to the direct or indirect impact that Russia’s invasion of Ukraine and the international response have had or may have on their businesses. The SEC’s Division of Corporation Finance recently released an illustrative letter reflecting comments it may issue to a registrant regarding compliance with these disclosure obligations.

To meet these obligations, the Division believes registrants should provide detailed disclosure, to the extent material or otherwise required, regarding:

• 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;
• Direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia;
• Actual or potential disruptions in the company’s supply chain; or
• Business relationships, connections to, or assets in Russia, Belarus or Ukraine.

Also, as a result of Russia’s invasion of Ukraine, registrants’ financial statements may need to reflect and (or) disclose the impairment of assets, changes in inventory valuation, changes in the deferred tax asset valuation allowance, disposal or exiting of a business, de-consolidation, changes in exchange rates, changes in contracts with customers, the ability to collect contract considerations or other matters. In addition, regardless of whether they have operations in Russia, Belarus or Ukraine, many registrants have experienced heightened cybersecurity risks, increased or ongoing supply chain challenges, impacts due to customers that are affected by the invasion, energy price volatility, and volatility related to the trading prices of commodities that warrant disclosure.

In addition, registrants 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.

Registrants should evaluate whether they have experienced or been impacted by matters characterized as potential risks and, if so, update disclosures accordingly.