The number of public companies filing their Form 10-K late has increased about 40% over 2023, but Partner Ro Sokhi and Managing Director Amy Gallagher say this is no surprise.
Sokhi said this is the culmination of a few factors, including under-prepared accounting departments for companies who went public during the SPAC and IPO boom in 2021 and 2022, new audit standards and increased scrutiny from the PCAOB and SEC, and an accounting talent shortage. Together, “all of that just created a perfect storm to cause these late filings,” he said.
The new auditing standards from the PCAOB included new processes, programs, and reporting obligations for public companies. “It’s a labor-intensive push on some of those [updates],” especially for companies that have gone through major changes such as an acquisition or merger, Gallagher said. “Just finding all of the information to be able to get clarity around that is a lot of work.”
Accordingly, Gallagher noted accounting teams are often short-staffed for the amount of work, meaning the SEC reporting deadline “consistently comes up as some fire drill.”
While it may be too late to course correct for 2024, Sokhi suggested something as simple as keeping a calendar of all filing deadlines and major events can be helpful to visualize the long-term workload. “There are three 10-Qs, if you’re a U.S. public filer, and then there’s one 10-K annual filing," he said. "But…if there’s a significant acquisition, you may need to file financial statements of the acquisition on an 8-K. If you have a cybersecurity event that’s a material breach, as soon as the company’s determined it’s a material breach, you have four days within which you have to file it on an 8-K".
If companies are coming up on a deadline and realize they need additional support, Gallagher said that companies should have relationships with outside firms to quickly add staffing and resources in order to meet deadlines. “Some of the companies that we work with, the really small companies or [those] that just went public, they have tiny accounting departments,” she said. “They have one person that they depend on for SEC reporting, and that’s just not enough capacity for anybody to be successful. So, I would say certainly having your partners [is important].”
Read the full article published by CFO Brew.
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