How to Avoid Filing Amendments to Your 10-Ks & Qs

October 19, 2018by Team IRIS CARBON

Companies in the US are coming under great scrutiny by the SEC for any hint of fraud or malpractice for filings submitted by them. The SEC has tightened its vigil on companies since the Sarbanes-Oxley Act of 2002 to oversee the financial landscape and prevent companies from incorrectly filing data.

If companies miss to report certain disclosures, they are required to file an amendment to their 10-Ks or 10-Qs. Investors, market analysts and stakeholders see amendment filings as a red flag as registrants are expected to submit complete and accurate information in their first attempt itself.

Analysis of Amendment Filings by Companies

Year Companies filing with the SEC Number of Filings Companies filing Amendments Amendment Filings % of Companies Filing Amendments
2017 6289 24302 476 776 8%
2016 6606 25376 542 878 8%
2015 7078 27341 688 1134 10%
2014 7275 28317 895 1527 12%
2013 7430 28833 1100 1861 15%
Average 11%

From our analysis of the SEC filings, the SEC received close to over 24,000 quarterly and annual filings from US public listed companies in the year 2017. Over a period of 5 years, on an average close to 11% companies submit amended filings.

Here are some guidelines to avoid filings amendments with the SEC-

1. Watch out for Reporting Mistakes:

This is the most common reason which companies file amendments for. Here we take a deeper look at some of the most common reporting mistakes-

  • Don’t forget to report all necessary disclosures:
    Companies most often miss disclosing information which is required to be reported. An example of omission to report vital information is as follows-Extract from a Company’s Quarterly report:
    This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2017 (the “Original 10-Q”) of ABC Group, Inc. to increase convertible debt and derivative liabilities due to a single note payable, which was inadvertently omitted in the Original 10Q. As a result, the total liabilities were increased $74,667 as of July 31, 2017, and the net loss was increase by $74,667 for the three and nine months ended July 31, 2017, respectively.How to avoid this:
    Information such as this is highly confidential and it is important that the company has an efficient process and a competent team reporting all the required information accurately.
  • Be mindful to tag numbers:
    Whether reported in numeric form or text, the SEC requires all numbers to be tagged in the Facing Statements and the detailed footnotes. This includes reporting all disclosures which are financial numbers, percentages ratios etc. Here is an example-Extract from a Company’s Quarterly report:
    This amendment to the XYZ Corporation quarterly report on Form 10-Q is being filed to update and correct the disclosure on the cover page regarding the number of shares of Company common stock that are outstanding.Here the company has incorrectly reported the number of Common Stock shares that are outstanding. This information is required to be reported in the Balance Sheet as well as reported on the Cover Page.How to avoid this:
    Misses such as these are very error prone as the author may have manually keyed in his data. With the progress of technology and evolution of cloud-based SaaS offerings, advanced features such as spreadsheet linking ensures that updates made in one place in the document flows through all the linked places. This helps in ensuring that accurate numbers flow through properly.

2. File your XBRL and HTML documents on time
The SEC requires companies to file their 10-Qs and 10-Ks in XBRL and EDGAR HTML format together but some companies file their EDGAR HTML first and the XBRL later. It is advised that both the documents are filed simultaneously as they are impact various stakeholders such as investors and market analysts.

  • How to avoid this:
    ‘Single-Source’ platforms are the only solution for enabling the Company to file both XBRL and EDGAR HTML together. With a single source solution, any updates made to the document are updated both to XBRL and EDGAR outputs. This would ensure that both documents are filed together and are in sync with each other. It is also important that the XBRL teams of the software provider work in tandem with the company’s filing schedule to make sure that the XBRL instance is ready and complete in all aspects.

3. Sign up with a trusted iXBRL/XBRL Software Vendor
Signing up with an efficient software service provider is of utmost importance to ensure a full understanding of the taxonomy and validation rules before you submit your filings to the SEC. If your software has issues or is not in sync with the latest SEC updates, your filings may not be up to the mark.

As reiterated earlier, filing amendments can mar the image of a company in the eyes of stakeholders and investors; make sure you avoid these mistakes to get your SEC filing right the first itself.

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