TheCorporateCounsel.net

This recent blog from Barnes & Thornburgh’s Jay Knight has the skinny on some informal guidance from SEC Staff members who participated in AICPA and ABA conferences last week concerning how companies should decide whether they need to check the new Form 10-K checkbox. Based on the statements made by Staff members & Jay’s subsequent conversations with them, he identifies a two-step process that companies should engage in to make the decision:

Step 1: Were there any revisions made to the “previously issued financial statements”? For example, with respect to a 10-K for FY23, “previously issued financial statements” would be the 2021 and 2022 periods (for most issuers). This would cover ANY revisions to those previously issued financials (e.g., “Big R,” “little r,” as well as any others (such as a $2 error)).

If NO revisions were made to those previously issued financials ➔ the analysis stops and the box is NOT checked.

If YES ➔ move to step 2

Step 2: Were the revisions made to the previously issued financial statements the result of accounting errors under ASC 250? Importantly, not all revisions are because of accounting errors. Examples of a revision that is not an accounting error is the adoption of a new accounting principle that is pushed back into prior periods. Examples of revisions that are an accounting error are 1) corrections of mistakes in the application of US GAAP and 2) corrections of mathematical mistakes.

While we’re on the topic of whether or not to check the box, here’s another scenario to keep in mind: Would a company that restated interim results in Form 10-Q/A filings be required to check the new box on the Form 10-K cover page? As Meredith blogged back in September, the Staff informally advised that if financial statements included in the 10-K are not required to disclose the correction of an error because the error only existed in interim periods, it would not object to an issuer’s decision not to check the box on the Form 10-K.

– John Jenkins