Key Filing Deadlines & Best Practices for Public Companies
Public Company Financial Reporting & Disclosure Requirements
So you're a private company that's about to go public. Or maybe you're a new employee with a public company, still getting acquainted with the post-IPO world. Either way, you probably have a head full of questions on your financial reporting and disclosure requirements. If that's the case, then we have some excellent news for you. You're in the right place.
While it's easy for us to say that the topic is a walk in the park, it’s also what we do all day, every day. So to ease your inquisitive mind a bit and give you an accurate idea of what to expect, we want to dive into financial reporting for public companies so you'll walk away with a noggin full of valuable information. You see, going from private to public doesn't have to be a dizzying experience with Embark leading the way.
Preparation Is Essential
Let's begin by taking a look at the financial reporting process since, like it or not, these filings are ongoing. Whether quarterly, annual, or one-off reports for special events and circumstances, you'll always have a report, maybe even multiple ones, in the pipeline, so it’s best to look at your reporting as a way of life in your post-IPO existence. Aside from your actual reports, your filing deadlines are another critical piece of information. But, as usual, Embark has you covered on that front as well.
Rock-Solid Internal Controls & Systems
That said, reporting is an area where efficiency and accuracy are at a premium. Your investors expect timely, reliable information to base their decisions on. That's exactly why public entities must develop and maintain such rigorous internal controls – to ensure they have the proper framework in place to generate reliable data for all.
Internal controls are a stumbling block for many newly public companies since life as a private entity simply doesn't involve the same level of scrutiny. Granted, internal controls are probably already on your radar given their importance, but we can't help but point out just how critical they are to your financial reporting.
If you already have a good handle on your internal controls, then we give you the proverbial gold star. But if internal control sounds more like a plot device from a dystopian YA novel than a critical accounting concept, then you've got some work to do. Whether you're an internal control pro or just learning the ropes, however, make sure you go through the process with a fine-toothed comb, document as you go like your hair's on fire, and have management – or at least someone – test your control environment.
Similarly, your systems play another significant role in the financial reporting process. If feasible for your operations and wallet, automated financial reporting solutions that can, for example, streamline data migration from your GL, will not only reduce errors, but also quicken the pace. For a more in-depth look at reporting efficiencies, we recommend you look through our 10 Reasons Your Financial Reporting Is Too Slow or Inaccurate. It's full of accounting wisdom that both companies and employees new to public reporting will find extremely beneficial.
Financial Statement Requirements
Now that we have the prologue out of the way, let's get to the main event. As a public entity, you're responsible for filing several different financial statements according to SEC rules.
The SEC expects public companies to file financial reports each of the first three quarters of every fiscal year on Form 10-Q. These quarterly, usually unaudited reports provide a comprehensive view of your company's performance, giving investors an ongoing sense of clarity on your financial condition. Form 10-Q contains a variety of financial statements, management discussion and analysis, and disclosures, including on your internal controls.
The reason you only file three 10-Qs a year is because the fourth slot is held by it's bigger sibling, Form 10-K. As you might've guessed, 10-Ks are annual financial reports required by the SEC. It takes a much deeper dive into your financials and operations than the 10-Q or even your annual report to shareholders, including information on:
- Company history
- Organizational structure
- Equity holdings
- Employee stock purchase and savings plans
- Executive compensation
- Legal proceedings
- Changes or disagreements with accountants
Further, since Form 10-Ks tend to be on the hefty side, it breaks down all of the information into five separate sections:
- Business – A high-level look at your operations, including your products or services. In short, how you make money.
- Risk factors – A ranked list of all risks, both today and in the future, that you may face.
- Selected financial data – Specific financial information detailing performance over the last five years.
- Management's discussion and analysis (MD&A) – Where you, as a company, tell your story and explain your financial results from the previous fiscal year.
- Financial statements and supplementary data – Your audited financials, including your income statement, balance sheet, and statement of cash flows, amongst other items. This section also contains a letter from your auditor certifying their review as well as footnotes to the financial statements which, as you might’ve guessed, houses your required disclosures. Keep in mind that there are a metric ton of different required disclosures, so what you include just depends on the uniqueness of your company and events.
Other Required Reports
The 10-Q and 10-K aren't the only reports the SEC will require of you, but they're certainly the most consistent ones. Aside from those two, you might have to file a Form 8-K on occasion as well. Form 8-K details any significant events that can affect your financial position, including an acquisition, divestiture, resignations from executive officers or directors, a bankruptcy, change in fiscal year, or several others. The Form 8-K is a bit of a catch-all, and only a requirement if any of those triggers – and the complete list of events is pretty darn lengthy – rear their head. As a quick heads-up, it’s important to have someone on your staff that knows when you have to file an 8-K.
While our high-level look at financial reporting covered most of the areas you need to discuss with your reports, there are a few other points you must always keep in mind. Besides the 10-Q, 10-K, 8-K, and shareholder reports, regulations change according to dynamics within the marketplace, as well as investor needs, concerns, and expectations. Sarbanes-Oxley (SOX) is a perfect example of this notion.
The Sarbanes-Oxley Act
As a result of Enron, Tyco, WorldCom, and a handful of other significant failures in the early 2000s, SOX drove substantial change in the regulatory environment and, thus, disclosure requirements for public companies. For a company new to the public side of the fence, SOX compliance can be intimidating and frustrating unless you have a solid roadmap to lead the way. Wink, wink.
Harkening back to our previous sentiments on internal controls, SOX has had an especially significant impact on disclosures related to a company's internal controls. To be exact, your internal control-related disclosure must include:
- A statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting for the company
- Management's assessment of the effectiveness of the company's internal control over financial reporting as of the end of the company's most recent fiscal year
- A statement identifying the framework used by management to evaluate the effectiveness of the company's internal control over financial reporting
- A statement that the registered public accounting firm that audited the company's financial statements included in the annual report has issued an attestation report on management's assessment of the company's internal control over financial reporting.
Collectively known as Section 302 certification, you're required to include this disclosure as part of your annual report. And as you might have noticed, they very much put your CFO on the hook for accuracy in your financials. Therefore, unless you want to see key members of your C-suite either booking flights to Equatorial Guinea or facing some steep consequences, adequately assessing your internal controls using the COSO framework is a very good idea.
Depending on your company, industry, and the nature of your operations, there could be some additional required disclosures that aren't necessarily commonplace. Therefore, you always want to do your research and make sure you leave no regulatory stone unturned. Also, there are a few other disclosure mainstays you'll need to include, besides those we've already mentioned.
- Description of your company's business
- Basis of your presentation (how you're presenting your fiscal numbers, and your period-end)
- Significant accounting policies
- Footnotes on intangibles, investments or hedges, fair value changes, accounts receivable, segment reporting, leases, debt, income taxes, earnings per share, acquisitions, and others
Yes, that's a lot of information to absorb, but that's okay. Rome wasn't built in a day, right? The point is, be deliberate with your preparation, start the process with impeccable internal controls and efficient systems, and go from there. And we hope it goes without saying that you are in no way alone as you make your way through the public entity forest. Embark is always here to lend you a hand and guide you into the clearing. It's what we do.