This checklist highlights certain considerations for companies preparing to file annual reports on Form 10-K for calendar year 2022. This list is not intended to be exhaustive and is not a substitute for your understanding of the requirements. It is simply a checklist of items that are new to this year’s 10-K filing or likely to receive attention from the Securities Exchange Commission (the “SEC”) or investors.
What You Need to Know:
- Registrants will want to consider certain changes to disclosure requirements and SEC “hot button” issues in drafting their 10-Ks and proxies for 2022.
- The following checklist is intended as a user’s guide to certain considerations that registrants should keep in mind.
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 March 1, 2023 for large accelerated filers, March 16, 2023 for accelerated filers, and March 31, 2023 for non-accelerated filers (in each case, assuming a December 31, 2022 fiscal year end). In addition, companies that were considered emerging growth companies in 2022 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 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. D&O Questionnaires. Nasdaq-listed companies should review D&O questionnaires to ensure compliance with the board diversity disclosure requirements. Remember to add a question to your D&O questionnaire to elicit information on your directors’ diversity characteristics and to obtain each director’s consent to publicly disclose the information. NYSE-listed companies and others should consider whether collecting and disclosing the same type of information would be responsive to their shareholders’ interests. Also consider adding questions to your D&O questionnaires eliciting information regarding expertise related to environmental, social and governance issues, including related to managing a company’s human capital, as well as cybersecurity issues.
3. Exhibit List. Review your exhibit list and add necessary exhibits, including the recently added registered debt exhibit, if applicable, and remove outdated exhibits no longer required to be filed, such as material contracts that have been fully performed. Consider whether any newly added exhibit containing confidential information should be redacted under one of the available options for omitting information from exhibits.
4. 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]”.
5. New Auditor Inline eXtensible Business Reporting Language (“iXBRL”) Tagging Requirements. You must tag in iXBRL (an open standard that enables a single document to provide both human-readable and structured, machine-readable data), your auditor’s: (1) name (tagging the signature on the audit report is not sufficient), (2) location (i.e., city and state, province or country) and (3) Public Company Accounting Oversight Board (the “PCAOB”) ID number. You must provide and tag this information for all auditors who have provided opinions related to the financial statements presented in your annual report.
6. Add New Item 9C. This requirement primarily impacts companies that retained a registered public accounting firm to issue an audit report where that registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspect or investigate the registered public accounting firm completely because of a position taken by an authority in the foreign jurisdiction. Such companies must electronically submit to the SEC, on a supplemental basis, documentation that establishes that the company is not owned or controlled by a governmental entity in the foreign jurisdiction. All other companies must include new Item 9C in their Form 10-K with the caption “Disclosure Regarding Foreign Jurisdictions that Prevent Inspections” and indicate that it is “[Not applicable]”. All companies should make sure this is added to the table of contents of their Form 10-K. In this regard, we note that the PCAOB has recently secured complete access to inspect and investigate registered public accounting firms in the People’s Republic of China and Hong Kong.
7. Disclosure Considerations.
(a) Non-GAAP Financial and Other Performance Measures. In your disclosure regarding 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. Further discussion of these disclosures can be found in the SEC’s new update to Non-GAAP Financial Measures Compliance & Disclosure Interpretations Questions.
(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 Russia’s invasion of Ukraine.
(c) Human Capital Management (“HCM”). You should consider which human capital measures or objectives your board and senior management has focused on during fiscal year 2022, as well as whether recent developments in your operations and industry, including those related to COVID-19, 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) Climate Change and Environmental, Social, and Governance (“ESG”) Disclosures. You should consider your existing climate-related disclosure in light of the SEC’ s 2010 climate change disclosure guidance, as well as Corp Fin’s recent Sample Letters to Companies Regarding Climate Change Disclosure. In addition, any material ESG information that you publish or disclose outside of your SEC filings should be considered for inclusion in the Form 10-K. You also may want to review the SEC proposal on ESG disclosures released in 2022 for further guidance, although that proposal has not been adopted as of this time.
(e) COVID-19. Changes in disclosure should reflect how the waning COVID-19 pandemic is impacting your company, including any continued impact of the pandemic on supply chain and operations as well as changes in governmental regulations and vaccine requirements.
(f) Inflation, Market Volatility, and Interest Rate Risk. You should consider disclosing (i) how inflation, market volatility, and rising interest rates 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.
(g) Disclosure Surrounding Russia and Ukraine. You should also consider, and if necessary refresh, your existing disclosures to reflect any actual or potential impacts that the war in Ukraine and related sanctions have had on your business. In its Sample Letter pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues, the SEC expressed that disclosure surrounding the conflict should discuss (i) direct or indirect exposure to Russia, Belarus or Ukraine through operations, employee base, investments in any such country, 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 Ukraine, (ii) direct or indirect reliance on goods or services sourced in Russia or Ukraine, (iii) actual or potential supply chain disruptions and (iv) business relationships, connections to, or assets in Russia, Ukraine or Belarus.
(h) London Interbank Offered Rate (“LIBOR”) Transition. In light of the progressing discontinuation of LIBOR, you should provide detailed and specific disclosure about your progress toward LIBOR risk identification and mitigation and the anticipated impact on the company, if material.
(i) Impacts of the Inflation Reduction Act. The Inflation Reduction Act of 2022 (the “IRA”) implemented three key changes for corporations—a corporate minimum tax, a one percent excise tax on certain stock buybacks and certain clean energy incentives and initiatives. To the extent any provisions of the IRA may impact your business or financial condition, additional disclosure regarding the impact of the IRA may need to be added to the risk factors, MD&A or the financial statements for the 2022 Form 10-K.
(j) Cybersecurity. In light of the SEC’s proposed new Cybersecurity Risk Management, Strategy, Governance and Incident rules and a recent Ninth Circuit decision, you should review your existing cybersecurity disclosures and refresh them as needed.
(k) 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 could have on your business, including impacts on competitive positioning as well as any anticipated tax credits.
(l) Clawback Policies. Depending on the implementation timeline for the SEC’s new clawback rules, 2023 reports may be affected by the SEC’s new disclosure requirements, which would require companies to disclose whether your financial statements reflect a correction to statements previously issued, your clawback policies, whether any financial statement corrections are restatements that require analysis under your clawback policy, and information about any actions taken pursuant to a policy. As to the implementation deadline, clawback policies may need to be in place by the second half of 2023, as each national securities exchange must issue proposed listing standards by February 26, 2023, and these listing standards must become effective by November 28, 2023.
(m) Item 201(e) Performance Graph and Pay Versus Performance. Beginning in this year’s proxy statements, you will be required to provide disclosure that satisfies the new pay versus performance disclosures required by Regulation S-K Item 402(v). These new disclosure requirements include comparisons to a peer group that may be the peer group identified in the Regulation S-K Item 201(e) performance graph. We expect many companies will use the same peer group identified in last year’s Form 10-K or Rule 14a-3 annual report for their initial pay versus performance disclosures. If you want to use a different peer group in the 2022 Form 10-K (and the pay versus performance disclosure) than the one in the prior year’s performance graph, you will need to “explain the reason(s) for this change and also compare the [company’s] total return with that of both the newly selected index and the index used in the immediately preceding fiscal year.”
(n) SAB 121: Safeguarding Crypto Assets. On March 31, 2022, the SEC staff released Staff Accounting Bulletin No. 121 (“SAB 121”), which provides guidance for entities to consider when they have obligations to safeguard crypto-assets for their platform users. If SAB 121 will be applicable to your company, you should consider including a reference to SAB 121 in the “Recently Adopted Accounting Standards” section of your Form 10-K, with an explanation as to when and how your company has implemented such guidance.
(o) 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.
(p) Mandatory Compliance with SEC Amendments to Items 301, 302 and 303. The SEC’s changes to Items 301, 302 and 303 of Regulation S-K, which collectively govern the disclosures of Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other selected financial data, became mandatory for Form 10-Ks filed for fiscal years ending on or after August 9, 2021.
8. 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.
9. Mandatory Filing of Glossy Annual Reports. Remember that beginning January 11, 2023, 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.
