With many companies filing their second quarter 10-Qs in the upcoming weeks, this Goodwin memo on updating risk factors in a 10-Q is particularly timely. The memo refers to what it characterizes as “better practices” when it comes to updating. This excerpt addresses whether companies that repeat their entire “Risk Factors” section should highlight changes to a particular risk factor:
If a company chooses to update its risk factor disclosure by restating the entire risk factor section from its Form 10-K report or a subsequent Form 10-Q report, we recommend that the company consider whether it would be better to highlight the changes in some manner that makes it more likely that the changes will come to the attention of readers. We believe that this is particularly relevant where the risk factor disclosure extends to several pages or more, which could have the unintended effect of making it difficult for readers to find and absorb the new disclosure about material changes.
Changes could be identified in various ways, such as in an introductory paragraph that refers readers to specific updated paragraphs, by use of footnotes, by use of bold text, or by use of symbols such as an asterisk at the beginning and end of each paragraph that contains changed or new text (which was the way the SEC’s EDGAR system marked changed text in the past).
Other topics addressed include whether to comply with Item 105 of S-K’s requirements (including a risk factors summary for Risk Factors sections exceeding 15 pages) in a 10-Q and issues associated with hypothetical risk factors. The memo also provides a bullet-point list of recent developments that might prompt companies to update risk factors disclosure in their upcoming 10-Q filings.
– John Jenkins