This checklist highlights certain considerations for companies preparing to file annual reports on Form 10-K for the calendar year ended 2023 and is intended to serve as a focused resource highlighting changes in disclosure requirements and points of emphasis for the Securities and Exchange Commission (the “SEC”) and investors. This list is not intended to be exhaustive and is not a substitute for your understanding of the requirements.
What You Need to Know:
- This checklist highlights changes to disclosure requirements effective for Form 10-Ks filed in 2024 as well as areas of heightened focus.
- This year Form 10-Ks must include a variety of new disclosures and exhibits, including regarding cybersecurity, incentive compensation recoupment, and insider trading plans and policies.
1. Confirming Filing Status. Confirm your filing status in order to determine the deadline and disclosure requirements for filing reports. This year's Form 10-K is due on Thursday, February 29, 2024 for large accelerated filers, Friday, March 15, 2024 for accelerated filers, and Monday, April 1, 2024 for non-accelerated filers (in each case, assuming a December 31, 2023 fiscal year end). In addition, companies that were considered emerging growth companies in 2023 should consider whether they no longer qualify as such (i.e., among other things, if the company has total annual gross revenues in excess of $1.235 billion or has become a large accelerated filer during its most recently completed fiscal year, the fifth anniversary of its IPO has occurred during its most recently completed fiscal year, or it qualifies as a large accelerated filer).
2. Exhibit List. Review your exhibit list and add necessary exhibits, and remove outdated exhibits no longer required to be filed, such as material contracts that have been fully performed. There are new requirements to file as exhibits insider trading policies as well as incentive compensation recoupment policies. Consider whether any newly added exhibit containing confidential information should be redacted under one of the available options for omitting information from exhibits.
3. Part II, Item 6 of Form 10-K. Remember that the requirement under Item 301 of Regulation S-K to provide five years of selected financial data has been removed. As a result, Item 6 in Part II should be updated to simply state “Item 6. [Reserved]”.
4. Disclosure Considerations.
(a) Non-GAAP Financial and Other Performance Measures. In your periodic reports and earnings releases that contain non-GAAP measures, you should discuss (i) whether you have identified certain performance measures as non-GAAP measures, (ii) whether you presented identified non-GAAP measures with the most directly comparable GAAP measure at the appropriate prominence level, and (iii) the appropriateness of adjustments in non-GAAP measures. You should also ensure your disclosure presents the most directly comparable GAAP measure for any non-GAAP measure with equal or greater prominence. During 2023 the SEC Staff continued to focus on non-GAAP financial measures in its comment letters and enforcement actions.
(b) Management’s Discussion and Analysis (MD&A). MD&A rules require companies to “describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” This year, you should consider including any relevant disclosures related to supply chain issues, inflation, potential recession, higher interest rates, and geopolitical conflicts.
(c) Human Capital Management (“HCM”). You should consider which human capital measures or objectives your board and senior management have focused on during fiscal year 2023, as well as whether recent developments in your operations and industry, including those related to return-to-office or cost saving initiatives, warrant updates to your HCM disclosures. You should consider the impact of the current labor conditions (e.g., ongoing labor shortages or increased reductions in force), whether they affect compensatory practices, workplace culture, severance or other costs, litigation exposure, and ensure your disclosure remains current.
(d) Inflation, Market Volatility, and Interest Rate Risk. You should consider disclosing (i) how interest rates, inflation, and market volatility have materially affected your company, including your operating results, sales, profits, cash flows, liquidity and capital resources, financial position, wage expenses, employee retention and capital expenditures, (ii) the key factors contributing to inflationary pressure on your business, and (iii) specific actions the company has taken or intends to take to mitigate these risks, including any changes in business goals, pricing strategies or interest rate hedging.
(e) Geopolitical conditions. You should also consider, and if necessary refresh, your existing disclosures to reflect any actual or potential impacts of geopolitical issues, including the conflict between Israel and Hamas, rising tensions between China and Taiwan, and the ongoing war between Russia and Ukraine. In sample letters relating to certain of these conflicts, the SEC expressed that disclosure surrounding conflicts should discuss (i) direct or indirect exposure to the relevant territories through operations, employee base, investments in any such country, securities traded in the relevant territories, sanctions against the individuals or entities or legal or regulatory uncertainty associated with operating in or exiting the relevant territories, (ii) direct or indirect reliance on goods or services sourced in the relevant territories, (iii) actual or potential supply chain disruptions, and (iv) business relationships, connections to, or assets in relevant territories.
(f) Cybersecurity. During 2023 the SEC adopted cybersecurity disclosure rules, which must be included on Form 10-K under newly added Item 1C for all annual reports for fiscal years ending on or after December 15, 2023. Item 1C requires disclosure of a company’s processes, if any, for assessing, identifying, and managing material risks from cybersecurity threats, a company’s board’s oversight of risks from cybersecurity threats, which board committee or subcommittee is responsible for cybersecurity threats and how it is informed about such risks, and management’s role in assessing and managing material risks from cybersecurity threats.
(g) CHIPS Act and Recent Export Controls Relating to Technology in China. If you operate in the semi-conductor research, development and production sector, you should consider the impact that the CHIPS and Science Act are having on your business, including impacts on competitive positioning as well as any tax credits.
(h) Incentive Compensation Recoupment Policies. As of December 1, 2023, if you are an NYSE or Nasdaq-listed company you must have in place and enforce a written incentive compensation recoupment (clawback) policy that provides for the recovery of erroneously awarded incentive-based compensation from your executive officers in the event that you restate previously issued financial statements to correct an error that is either (i) material to your previously issued financial statements (i.e., a “Big R” restatement), or (ii) would not be material to your previously issued financial statements but would result in a material misstatement if corrected in the current period or if left uncorrected in the current period (i.e., a “little r” restatement). However, if you identify and correct (such as through an out-of-period adjustment or voluntary revision) an error that is immaterial to your previously issued financial statements, generally that correction should fall outside of the scope of the incentive compensation recoupment requirements.
Beginning this year, Form 10-K also includes two new checkboxes: (i) one to indicate whether the included financial statements reflect the correction of an error to previously issued financial statements (the “error correction box”); and (ii) one to indicate whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by executive officers during the relevant recovery period (the “recovery analysis box”). You must check the error correction box if your financial statements include any error correction, regardless of materiality (meaning even in the case of an out-of-period adjustment or voluntary revision). However, you would only check the recovery analysis box if your financial statements include an error correction resulting in a “Big R” or “little r” restatement. Additionally, beginning this year you must file your incentive compensation recoupment policy as Exhibit 97 to your Form 10-K.
If at any time during or after your most recently completed fiscal year you are required to restate your financial statements and recover erroneously awarded incentive-based compensation (or if there is an outstanding balance of erroneously awarded incentive-based compensation) your proxy statement (and Part III of your Form 10-K) must incorporate the disclosures required under new Item 402(w) of Regulation S-K as part of your executive compensation disclosure. This includes disclosure regarding, among other things, the restatement date, the amount of erroneously awarded compensation attributable to the restatement, the amount of erroneously awarded compensation that remains outstanding, if any, and, if recovery would be impracticable, the amount of recovery forgone as well as a brief description of the reasons why you chose not to pursue recovery.
(i) Trading Plan Related Disclosures. The SEC's amended Rule 10b5-1 includes new requirements for trading plans to qualify for the rule’s affirmative defense as well as new disclosure obligations for companies regarding insiders’ trading plans. As has been the case for quarterly reports, your Form 10-K must include information about directors and officers trading arrangements entered into during the fourth quarter. Other required Form 10-K disclosures are Part III information, which you may forward incorporate by reference from your proxy statement filed later this year. That additional information includes disclosures regarding your insider trading policy, practices and policies related to the timing of equity compensation awards, and any awards to named executive officers during a period before and after your disclosure of material non-public information.
(j) Board Oversight of Risk. In light of the recent increase of regulatory scrutiny surrounding internal controls, risk management and asset protection by the SEC, you should consider including the information related to risk identification and evaluation in your Form 10-K or incorporating it by reference into your Form 10-K from your proxy statement.
5. Climate Change and Environmental, Social, and Governance (ESG) Disclosure Update. While the SEC proposed climate-related disclosure rules in March 2022, these rules have not yet been finalized and are not yet effective. Accordingly, climate-related disclosures should be reviewed in light of the SEC’s 2010 climate change disclosure guidance and sample comment letters. The SEC is expected to provide an update on the rulemaking process in 2024. It is likely that any final rule will require disclosures regarding Scope 1 and 2 emissions in line with the disclosures described in the proposed rules. The requirements setting forth disclosure requirements regarding Scope 3 emissions have been the most controversial and may be modified in any final rule. Given the high likelihood that these disclosure rules will be finalized in some form this year, companies should stay informed of potential developments and be prepared to develop procedures to comply in the future.
If your company does business in California and has worldwide revenues over $500 million, new disclosure requirements there pertaining to greenhouse gas emissions were signed into law in the fourth quarter of 2023. These laws require you to disclose your greenhouse gas emissions (Scope 1, 2, and 3) and climate-related financial risks starting in 2026. Given the significant overlap of California’s disclosure requirements as they pertain to Scope 1 and 2 disclosures with the SEC’s proposed disclosure rules, impacted companies should design their disclosure procedures in a manner that will enable them to efficiently satisfy both sets of requirements.
6. Update Any Outstanding Registration Statements on Form S-1. Remember to update any of your outstanding registration statements on Form S-1 by filing a post-effective amendment to incorporate annual financial statements and other updated disclosures in your Form 10-K.
7. Mandatory Filing of Glossy Annual Reports. Remember that companies are required to electronically furnish glossy annual reports to the SEC in .pdf format through EDGAR. Paper copies furnished to the SEC and .pdf copies posted to your website are no longer sufficient.
