July 14, 2025

Déjà Vu: It’s 10-Q Time Again and Tariffs Are Back

In late April, John shared some tips for companies preparing their first quarter 10-Qs, noting that the “timing of the President’s actions and the potential for another shoe to drop in less than 90 days create almost perfect conditions for companies to stumble into traps for the unwary when addressing these line-item disclosure requirements.” While companies were grappling with tariffs — and the resulting disclosure considerations — at 10-K and first quarter 10-Q time, we now find ourselves assessing new information and a possible August 1st effective date that presents timing challenges for second quarter 10-Qs. 

It seems tariff-related disclosure reminders are once again timely. Since this is a déjà vu / glitch-in-the-matrix situation, I’ve got the easy task of gathering a blog roundup, thanks to my brilliant colleagues who shared excellent tips earlier this year:

The Tariffs Are Here: What Does This Mean for Public Company Disclosures?

More Tariffs are Here: The Disclosure Considerations

Risk Factors: Do You Need to Update Your Form 10-Q?

Navigating Earnings Calls & Investor Meetings Amid Tariff Turmoil

Tariff Disclosure: Form 10-Q Traps for the Unwary

We’ve also written about the governance, commercial and compliance implications of the ongoing tariff developments:

Tariff-Related Issues for Boards & Audit Committees

Will New Tariffs Trigger Contractual Force Majeure Clauses?

Tariff Compliance: Beware the False Claims Act

Tariff Troubles: Questions the Audit Committee Should Ask

Board Duties: Navigating Tariff Oversight Responsibilities

Tariff Turbulence: Friction Points in Commercial Contracts

Tariff Turbulence: Legal and Compliance Risks in a Global Trade War

And don’t forget that we’ve consolidated tariff-related resources into a new “Trump Administration Tariffs” Practice Area.

– Meredith Ervine 

July 14, 2025

Big, Beautiful Second Quarter Form 10-Q Disclosures

Tariffs aren’t the only major news coming out of Washington this month. You may have heard about a little thing called the “One Big Beautiful Bill Act,” which President Trump signed into law on July 4. The potential impacts of this legislation on certain industries (like energy, real estate, semiconductors, EVs, defense and manufacturing more broadly) have been widely reported. For companies in these industries (and any others I missed), the bill will be a major topic of discussion on earnings calls and in 10-Q and earnings release disclosures. At least one company has already publicly addressed the potential impacts of the bill on its business.

But, as you know, the legislation also has significant business tax provisions that, according to the many memos we’ve already posted, are expected to impact virtually every business in the country. And these tax provisions (see this interactive table) come with accounting and disclosure implications. BDO has this to say about the accounting implications generally:

The legislative changes will affect income tax accounting in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Notable corporate provisions include the restoration of 100% bonus depreciation; the creation of Section 174A, which reinstates expensing for domestic research and experimental (R&E) expenditures; modifications to Section 163(j) interest limitations; updates to the rules for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII); amendments to the rules for energy credits; and the expansion of Section 162(m) aggregation requirements.

Those provisions could have important implications for the calculation of current and deferred taxes, including the assessment of valuation allowances. However, because the bill was signed after the June 30 period-end and its provisions have varying effective dates, only some changes – such as those affecting valuation allowance assessments – might affect the current year’s financial statements.

The alert goes on to discuss accounting considerations — including assessing the impact on income tax provision calculations (including current and deferred tax balances), the estimated annual effective tax rate and valuation allowances — some of which may be relevant in the near term to the upcoming second-quarter 10-Q for calendar-year filers. Here’s what it has to say about related disclosures.

Companies need to consider disclosing the expected effects of new tax laws in the notes to the financial statements, management’s discussion and analysis, and risk factors.

If a law is enacted after the interim balance sheet date but before financial statements are issued, the tax law change would be considered a Type II nonrecognized subsequent event under ASC 855, Subsequent Events. In that case, companies must disclose the nature of the event and either estimate its effect (if material) or state that an estimate cannot be made. If a law is enacted during an interim period, major variations in the relationship between income tax expense and pretax income must be explained.

Meredith Ervine

July 14, 2025

Form 10-Qs: But Wait, There’s More!

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 

July 11, 2025

DExit: Andreessen Horowitz Drops a Bomb on The First State

To date, the DExit movement has mostly been “all hat and no cattle,” but that changed yesterday, when Andreessen Horowitz, one of Silicon Valley’s biggest names, announced that it was leaving Delaware, and recommended that others follow its lead:

It used to be a no-brainer: start a company, incorporate in Delaware. That is no longer the case due to recent actions by the Court of Chancery, which have injected an unprecedented level of subjectivity into judicial decisions, undermining the court’s reputation for unbiased expertise. This has introduced legal uncertainty into what was widely considered the gold standard of U.S. corporate law. In contrast, Nevada has taken significant steps in establishing a technical, non-ideological forum for resolving business disputes. We have therefore decided to move the state of incorporation of our primary business, AH Capital Management, from Delaware to Nevada, which has historically been a business friendly state with fair and balanced regulatory policies.

We could have made this move quietly, but we think it’s important for our stakeholders, and for the broader tech and VC communities, to understand why we’ve reached this decision. For founders considering a similar move, there is often a reluctance to leave Delaware, based in part on concerns for how investors will react. As the largest VC firm in the country, we hope that our decision signals to our portfolio companies, as well as to prospective portfolio companies, that such concerns may be overblown. While we will continue to fund companies incorporated in Delaware, we believe Nevada is a viable alternative and may make sense for many founders.

The statement goes on to make a tendentious argument in favor of abandoning Delaware for Nevada’s supposedly greener corporate pastures. But the merits of Andreessen Horowitz’s argument don’t really matter.  What matters is that a16z is moving, and it’s sounding the clarion call for others to do so as well. 

I’ve argued that the real threat to Delaware’s dominance isn’t a mass exodus of public companies, but the possibility that the Andreessen Horowitzs of the world might decide that other jurisdictions offered them a greater ability to control their post-IPO portfolio companies than Delaware does. Andreessen Horowitz’s move is the first example of this, but given the firm’s prominence, it’s unlikely to be the last. The 21st Century’s “race to the bottom” has officially begun.

John Jenkins

July 11, 2025

Board Minutes: An AI “Bartleby the Scrivener”?

We’ve previously blogged about some of the big picture issues associated with the use of AI tools in the boardroom, but this Debevoise memo focuses more narrowly on the use of AI to draft minutes, and what companies should consider when deciding whether to use AI tools for that purpose.

The memo discusses, among other things, confidentiality and cybersecurity concerns, state law notice and consent requirements that come into play when meetings are recorded, privilege issues, and implications for document retention policies. In his recent D&O Diary blog on this topic, Kevin LaCroix highlights another topic for consideration:

I have a particular concern here, and that has to do with the kinds of allegations plaintiffs’ lawyers raise in “duty to monitor” type cases. The plaintiffs lawyers will use books and records requests to obtain board minutes and will scour the records to see the extent to which the minutes show that the board discussed a “mission critical” topic.

The risk is that the minutes do not show the topic being discussed, allowing the plaintiffs’ lawyers to make the argument that “the board didn’t even discuss” the critical topic. The possibility of overly terse board minutes omit discussion of key topics is always present. I fear that with AI-generated minutes this risk is increased. Even if humans review the minutes, they may not spot the omission (as it is always harder to spot an omission than an error). This type of litigation risk highlights the need for heightened vigilance with respect to board use of AI tools.

Kevin cautions that all decisions concerning the use of AI tools in the boardroom should be informed by the need to ensure that boards are in the appropriate position to defend themselves in the event they face a subsequent lawsuit. As for me, when it comes to using AI to draft minutes, I think I’m aligned with the analog version of Bartleby the Scrivener – “I prefer not to.”

John Jenkins

July 11, 2025

Timely Takes Podcast: J.T. Ho’s Latest “Fast Five”

Check out our latest “Timely Takes” Podcast featuring Cleary’s J.T. Ho & his monthly update on securities & governance developments. In this installment, J.T. reviews:

– The SEC’s “Executive Compensation” Roundtable
– Director Interlocks Study
– PwC Board Study
– DEI Executive Order Updates
– DExit Scorecard Study

This month’s podcast includes a “bonus round” featuring J.T.’s thoughts on potential disclosure implications of the Iran conflict.

As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.

July 10, 2025

Audit Committees: PCAOB’s Questions for Prospective Auditors

The PCAOB recently issued a new Audit Focus report on engagement acceptance by accounting firms. Like most PCAOB publications targeted toward auditors, this one is also worth reading by public company audit committees and their advisors. The report covers a variety of issues that auditors should consider before accepting particular engagements. This excerpt lays out questions that auditors should consider in connection with any new engagement:

– Were there any recent changes in ownership, company management, the board of directors, or the composition of the audit committee related to the prospective engagement? What were the reasons for the changes?

– What are the qualifications of the company’s current management team and the audit committee associated with the prospective engagement, and do these qualifications enable them to execute their roles and responsibilities effectively?

– Has the audit firm considered any previous restatements or material weaknesses (e.g., nature of restatements, nature of deficiencies, whether they are long-standing, etc.)?

– Were there any risk factors that indicate that company management and those charged with governance lack integrity?

– Has the audit firm thoroughly considered whether its personnel are free from any obligation to, or interest in, the prospective engagement, company management, or the company’s owners?

– Is the audit firm independent or will the audit firm be able to become independent for the audit and professional engagement period?

– Does the audit firm have sufficient knowledge and experience or appropriate access to subject matter experts, including relevant industry expertise, to undertake the work?

– Was the company’s management or audit committee aware of any improper activities conducted by the former auditor during interim reviews or annual audits, including activities related to the supervision of the audit or to the engagement quality review?

– Was the company’s management or audit committee aware of any illegal acts identified by the predecessor auditor and not reported to the U.S. Securities and Exchange Commission or any other relevant regulators?

The report also addresses inquiries that an audit firm must make if a company is changing auditors and reviews certain responsibilities of successor auditors. Audit committees and their advisors likely will find the report helpful in identifying potential areas of concern to a new auditor in connection with its engagement and in developing strategies to address those concerns.

John Jenkins

July 10, 2025

Insider Trading: Del. Lawsuit Targets Offering During Blackout Period

Last week, in Hanna v. Paradise and Skillz Inc., (Del. Ch.; 7/25), the Delaware Chancery Court refused to dismiss insider trading allegations against corporate insiders arising out of their sales of company stock in a public offering conducted during a blackout period. mandated by the company’s insider trading policy. The plaintiff alleges that the company failed to disclose material negative information about its performance of which the board was aware until after the offering, which permitted insiders to sell their shares in the offering at an inflated price.

This case doesn’t involve a 10b-5 claim; instead, it’s a so-called Brophy claim” alleging that the defendants’ actions involved a breach of fiduciary duty. The lawsuit was filed as a derivative action, so this decision focuses on issues like demand futility and director independence and does not address the substance of the plaintiff’s allegations. Chancellor McCormick declined to dismiss the case, so the possibility exists that she may address some of the more interesting issues raised by the case in subsequent proceedings.

Even if the Chancellor doesn’t address those issues, the case gives me an excuse to plug our upcoming “Securities Offerings During Blackout Periods” webcast – which I assure you will focus on the substantive issues surrounding a decision to move forward with a public offering during a blackout period.

John Jenkins

July 10, 2025

Our “PDEC” Conferences: Don’t Miss Out on Early Bird Pricing!

We’ve put together a timely and topical agenda and assembled a terrific group of speakers for our “Proxy Disclosure & 22nd Annual Executive Compensation Conferences” to be held on October 21-22 at The Virgin Hotels in Las Vegas. Sure, I’m in full salesman mode here, but you don’t have to take my word for it when it comes to the quality of our speakers – just look at the SEC’s recent Executive Compensation Disclosure Roundtable, where our speakers were featured on every panel!

If you follow our blogs, you know that there’s a lot going on in the world of securities regulation and corporate governance. The SEC is taking a hard look at executive comp disclosure requirements, DEI disclosure practices continue to evolve, and we’ve seen numerous important developments in activist strategies and tactics, shareholder proposals, and Delaware law during the first half of the year. You can’t afford to miss out on the critical guidance on these and other topics that our speakers will provide at our Conferences.

Register now to take advantage of our “Early Bird” rate – a 20% discount on the single in-person attendee fee. That rate expires on July 25th, which is just over two weeks from now, so register for our PDEC Conferences today! We hope to see you there in person, but as always, we have a virtual option for those of you who are unable to travel to Las Vegas for the event. You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.

John Jenkins

July 9, 2025

Small Business Advisory Committee Meeting: Finders & Reg A on the Agenda

The SEC released the agenda for the upcoming meeting of its Small Business Advisory Committee, and the topic of finders is front and center. Here’s what the agenda item “Deep Dive on Finders” will address:

In 2020, the Commission proposed, but did not finalize, a limited, conditional exemption from broker registration for “finders” who assist companies with raising capital in private markets from accredited investors. In an ongoing effort to promote small business capital formation, including access to capital for founders who are building businesses outside of prominent entrepreneurial hubs or without robust capital-raising networks, the Committee will explore issues surrounding “finders.”

To facilitate discussion and deepen the Committee’s understanding of “finders” and provide historical regulatory context, members will hear from SEC staff in the Division of Trading and Markets who will provide an overview of the 2020 proposal and share certain feedback from commentors. Thereafter, the Committee will have the opportunity to learn more about the role of “finders” and possible regulatory solutions from industry practitioners. As part of this discussion, the Committee will explore potential principles, frameworks, conditions and safeguards that could permit certain “finders” to engage in limited capital-raising activities.

The agenda also provides for continuing the discussion of Regulation A that began at the Committee’s May 6th meeting.

John Jenkins