CFOs Struggle to Meet Filing Deadlines Amidst Resource Shortages and Regulatory Changes

More and more public companies are filing extensions with the SEC for their financial reports, and professionals are raising red flags over the sharp increase compared to last year. Partner Ro Sokhi and Managing Director Amy Gallagher warn this surge in filing delays is raising red flags about companies’ ability to meet regulatory deadlines and maintain investor trust.

As for why, Sokhi and Gallagher point out the triple threat of resource shortages, regulatory upheaval, and companies going public through Special Purpose Acquisition Companies, driven by an Initial Public Offerings boom, is crippling companies’ reporting capabilities. “We’re seeing a perfect storm of factors,” said Sokhi. “This has resulted in a shortage of skilled accountants, making it difficult for companies to find the necessary talent to meet filing deadlines.”

The consequences, he noted can be severe: If financial statements are not filed within the grace periods, the company may face costly fines and penalties, including deregistration by the SEC, delisting by stock exchanges, an inability to issue securities to raise capital, and a drop in stock price.

Skilled accountants are an invaluable necessity, but high demand across sectors, retirement from the previous generation of accountants, and a decline in the number of accountants graduating over the past two decades have caused the available pool to shrink. As a result, “these companies didn’t have the infrastructure in place to operate as a public company, and yet they're expected to, so they kind of have to grow into those shoes really, really quickly,” said Gallagher.

Recent regulatory changes make the job even harder, implementing new standards that demand significant resources and expertise to address and leaving many companies struggling to keep up. “Some of the solutions will be more utilization of off-shore resources and better use of technologies with Al-like capabilities,” said Sokhi. “The latter is still in development and really not available to most companies yet.”

In the near-term, Gallagher suggested companies should engage accounting firms to outsource various functions in their accounting department or to utilize project resources to add capacity to existing staff. "Firms plan properly, really understand what resources you have in-house and where you have gaps,” she said. This requires CFOs to be realistic about determining appropriate staffing levels and hire accordingly.

One way to manage fluctuating workloads of reporting is to supplement their teams with project resources and outsource partners. This approach helps protect full-time staff from burnout, ensures reporting accuracy, and guarantees meeting reporting deadlines.

Additionally, maintaining awareness of recurring SEC deadlines and any ad-hoc deadlines, such as filing registration statements to raise capital, is important to help prevent surprises and ensures timely preparation.“It matters that you get this right and get it done on time,” said Sokhi.

Read the full article published by CFO Brew.