Latest / PwC's accounting podcast / Inside SEC reporting: Form 8-K (current report)

Transcript

Inside SEC reporting: Form 8-K (current report) · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PWC's National Office.
0:05
SPEAKER_03: Welcome to PWC's Accounting Podcast.
0:08
SPEAKER_03: I'm Kyle Moffat, PWC's professional practice leader, and your guest host for this SEC focused series.
0:14
SPEAKER_03: In today's episode, we are talking all things Form AK, from when and what's required to current hot topics and key reminders.
0:22
SPEAKER_03: One quick note: this is a video podcast series.
0:25
SPEAKER_03: If you're listening to the audio-only version and interested in watching the video, just head to the show notes for the link.
0:31
SPEAKER_03: Today we're joined by two great guests: Raquel Fox, co-head of SCADN's SEC Reporting and Compliance Practice, and Kevin Vaughn, a national office partner at PWC.
0:41
SPEAKER_03: With all three of us having prior SEC experience and of course now working with clients on the other side of this conversation should bring valuable insights for our listeners.
0:51
SPEAKER_03: Welcome to you both.
0:52
SPEAKER_03: It's great to have you here.
0:54
SPEAKER_03: We've got a lot to cover today, so let's dive right in.
0:57
SPEAKER_03: So, Kevin, I'm going to start first with you.
1:00
SPEAKER_03: Really want to start with the basics.
1:02
SPEAKER_03: Can you describe exactly what is a Form 8K for the audience and why is it such an important topic?
1:08
SPEAKER_04: Yeah, absolutely.
1:09
SPEAKER_04: So it's a it's a current report on Form 8K.
1:12
SPEAKER_04: So you have your traditional reporting, quarterly and annual, uh, which sets forth like the financial results, things like this.
1:19
SPEAKER_04: And this is the 8K is basically a mechanism uh for you to report other intervening events, right, that might happen in the business that are important for investors.
1:27
SPEAKER_04: Uh, and so there's a whole series of triggers uh in the form that that will require you to file a form 8K uh or or and and report that information.
1:37
SPEAKER_04: And they'll have specific information that you have to report as well.
1:40
SPEAKER_04: Some of those triggers are legal-based, contract-based, uh, and then some of them can be accounting triggers.
1:46
SPEAKER_04: Uh, so certainly as we think about um acquisitions, dispositions, impairments, things like that, that that the accounting function might be closely involved with, uh, thinking about how that's gonna impact potential reporting from an 8K perspective.
2:00
SPEAKER_04: Uh, and and part of the reason we're talking about is because non-compliance is pretty significant, right, Raquel?
2:05
SPEAKER_02: It it is.
2:06
SPEAKER_02: I actually I have a little treatise that I carry around with me wherever I go, even on trips for 8K, for these reasons, because we tend to get lots of questions about form 8K.
2:17
SPEAKER_02: So it can have very serious consequences.
2:19
SPEAKER_02: If you meet certain, if you miss certain Form 8K deadlines, you won't be able to use a Form S3.
2:26
SPEAKER_02: So you'll use Form S3 eligibility for 12 months, which means that a company can't quickly go go to market, which is really important.
2:34
SPEAKER_02: There are some key exceptions.
2:35
SPEAKER_02: So if you file an 8K late, it won't impact that.
2:39
SPEAKER_02: So, like item 101, which is material contracts, think about the cyber 8K because of the materiality determination.
2:46
SPEAKER_02: So there are a few others, but so not every 8K will will put you in that, um put you in that black box, so so to speak.
2:55
SPEAKER_02: The SEC does give limited waivers if you if you miss your um 8K deadline, but I think those are far and few between.
3:02
SPEAKER_02: And it really has to be um pretty close in time to when you would file the 8K, like usually within a week was kind of the deadline.
3:10
SPEAKER_02: But I haven't heard of many of those.
3:12
SPEAKER_03: No, though that has not been a uh consistent thing.
3:15
SPEAKER_03: And I guess you know it's always interesting.
3:16
SPEAKER_03: It'll be interesting to see if there's changes in the new administration, whether they're more open to you know accepting some of those arguments.
3:24
SPEAKER_04: But yeah, no, and I I think the timing point is an important point as well, because your timeline to report these is pretty tight, right?
3:31
SPEAKER_04: It's four business days for most of these items.
3:33
SPEAKER_04: We'll talk about maybe where there's some exceptions, but uh so you need to be thinking about it ahead of time for sure.
3:39
SPEAKER_03: I think it's interesting too, hearing both of you.
3:41
SPEAKER_03: You you're talking about events that are in in my mind, I'm like thinking, well, just if it's a material, like it's a material event, like that that's the way you should really think about it.
3:50
SPEAKER_03: So I think that definitely should resonate with the audience.
3:52
SPEAKER_03: The important piece to highlight here is is the the need for cross-functional collaboration, right?
3:57
SPEAKER_03: And so we have, you know, an attorney, an accountant, right?
4:00
SPEAKER_03: And so, you know, the the the short time frame of reporting obviously is a huge, a huge deal, um, especially with respect to those potential implications for for filing.
4:09
SPEAKER_03: Um, so it's definitely a good, I think this is a good, a good topic for us to discuss.
4:13
SPEAKER_03: Um, so before we get into some of the long-standing kind of requirements, um, Raquel, many of the requirements have been around for a while.
4:21
SPEAKER_03: Um, but you one thing that we did mention already in thinking about the 8K um triggers, right, is a more recent one in the cyber incident reporting.
4:29
SPEAKER_03: So can you talk a little bit about that and kind of share any challenges that that you've been dealing with when thinking about those requirements?
4:35
SPEAKER_02: Sure.
4:36
SPEAKER_02: So the the SEC put in place a new trigger for 8Ks for for cyber.
4:41
SPEAKER_02: And the interesting thing is the triggering date is four days, four business days from when you make the materiality determination, which is a bit different from a lot of the eight other 8K requirements.
4:52
SPEAKER_02: Um but that doesn't mean that you can take your time to make that determination.
4:56
SPEAKER_02: It has to be without um without unreasonable delay.
4:59
SPEAKER_02: Um, when the rules came out, you saw quite a few 8Ks being filed and a lot of them being filed under this item 101 new requirement.
5:08
SPEAKER_02: And the SEC clarified to say, no, we really want you to be filing under item 101 if you've determined it's material.
5:15
SPEAKER_02: If it's not material, if you're still thinking about it, file that under, let's say, item 801 as a voluntary.
5:22
SPEAKER_02: I have people ask, well, why do you file an 801 for cyber?
5:26
SPEAKER_02: And a lot of times, if there's been a cyber event and it's in the news, but it's not material, companies will file.
5:32
SPEAKER_02: A lot of purposes, that's just Reg FD requirements.
5:36
SPEAKER_02: So they can make sure the information is out there to everyone to let people know we don't think it's material and this is how we're we're assessing it.
5:44
SPEAKER_03: Yeah, and I think that's been the interesting piece of all this, right?
5:47
SPEAKER_03: Is you have all of these various 8K reporting requirements, and you start to look at the various buckets, you're like, well, do I follow an item 701 form 8K?
5:55
SPEAKER_03: Item 801, which you mentioned is the is the other events 8K, and of course the item 105 8K, which is a cybersecurity incident reporting.
6:02
SPEAKER_03: So there's a lot of things to think about.
6:04
SPEAKER_03: And and there is obviously you can look and Form AK outlines each of the various items to take a look at.
6:10
SPEAKER_03: Um, I guess my, and I don't know if it's really a question or if it's more of a comment, right?
6:14
SPEAKER_03: Is there there has there been a lot, certainly a lot of of criticisms of of the rule itself when it was you know adopted.
6:21
SPEAKER_03: Obviously, there's annual reporting requirements, but you know, the the AK reporting requirements specifically.
6:26
SPEAKER_03: Um, so it'll be interesting to see.
6:28
SPEAKER_03: Does the new administration come in and take a look at this, revisit it?
6:32
SPEAKER_03: Any comments there?
6:34
SPEAKER_03: Like what what are we hearing?
6:35
SPEAKER_02: Anything or so, interestingly enough, I thought that this would be one of the ones that kind of survived because there weren't a whole lot of rumblings about about at least the 8k 8k requirement, but but we'll have to wait and see because it is challenging for companies to make this materiality determination using qualitative and quantitative.
6:54
SPEAKER_02: So um like I said, that's a good point.
6:57
SPEAKER_02: We'll we'll see.
6:57
SPEAKER_04: And I think we have, I just we have seen the numbers maybe level off.
7:02
SPEAKER_04: I don't know.
7:02
SPEAKER_04: I mean, I think there's still lots of cyber uh security concerns out there uh that companies are dealing with on a day-to-day basis, but it's interesting to see how it it feels like we've kind of settled into now the point of people understand what's expected, they understand uh what they need to put in the AK, and they've probably built their processes around it so they feel more comfortable with it.
7:22
SPEAKER_04: So that might take some of the pressure off of some of those initial concerns where people were like, we don't know what to do with this, what's gonna, we don't want to miss an AK filing for the for the same reason.
7:31
SPEAKER_03: Look, I I think the outcome, right, is obviously a good one, right?
7:35
SPEAKER_03: From you think about just what companies have put in place with respect to their processes, their controls, their rigor involved in kind of doing these assessments and figuring out the the broader impacts.
7:45
SPEAKER_03: I think that's certainly the positive.
7:47
SPEAKER_03: And look, I think we've seen both sides of the aisle focus on cybersecurity as a hot topic.
7:53
SPEAKER_03: So it will be interesting to see kind of where they head.
7:55
SPEAKER_03: Kevin, you you mentioned a little bit about materiality.
8:02
SPEAKER_03: You know, key concepts there we need to really focus on and get some points on from you.
8:06
SPEAKER_04: Yeah, yeah.
8:07
SPEAKER_04: Just real quick, and we kind of hit on the timing already.
8:10
SPEAKER_04: Four business days uh is generally the AK um requirement.
8:13
SPEAKER_04: Uh, there's certain things that we'll talk about, like acquisitions, financial statements, things like that, where you can get additional, where you might have additional time, uh, or like in the cyber situation where you still have to file within four days of that material materiality termination, but you may not have all the information.
8:28
SPEAKER_04: So there's other examples like that too, where you might um be able to file uh later with some of those.
8:35
SPEAKER_04: Uh in terms of like the different, like we talked about, they're all broken out by triggering events.
8:39
SPEAKER_04: It's kind of broken out by category.
8:41
SPEAKER_04: Uh, so you have like item item one is a lot of information about the business and the operations.
8:46
SPEAKER_04: Uh, maybe just a couple other examples.
8:48
SPEAKER_04: Item two, which we'll talk about uh some more, is financial results, uh acquisitions, things like that.
8:54
SPEAKER_04: Um, item four is auditor, financial statement related matters.
8:58
SPEAKER_04: Uh item five is corporate governance.
9:01
SPEAKER_04: Uh, and then we talked about seven and eight as well.
9:04
SPEAKER_04: Um, and then nine is kind of where you put exhibits, financial statements, contract, you know, some of those things.
9:09
SPEAKER_03: Materiality.
9:09
SPEAKER_03: What do you what about?
9:10
SPEAKER_04: Oh, yeah, materiality.
9:12
SPEAKER_04: So, so a lot of it is there is kind of this concept of materiality.
9:16
SPEAKER_04: Uh, Raquel pointed out, like cyber, the the trigger is the materiality determination.
9:21
SPEAKER_04: I think in a lot of the other examples, the trigger where materiality comes into play, the trigger is just the event.
9:27
SPEAKER_04: Yeah, right.
9:28
SPEAKER_04: But then it also needs to be material, right?
9:31
SPEAKER_04: It would it would need to meet the materiality.
9:33
SPEAKER_04: But then we also have in certain examples, it's more of like a significance uh type of concept.
9:39
SPEAKER_04: And that's some of the financial related things, acquisitions, dispositions, uh, things like that.
9:44
SPEAKER_04: Um, so see you'll have a it's a little bit different.
9:47
SPEAKER_04: There's a calculation.
9:48
SPEAKER_04: I know, I know you did one uh already with with Scott and Liz that talked about some of those calculations.
9:54
SPEAKER_03: Yeah, I mean, I think it's it's it's obviously important, right?
9:56
SPEAKER_03: Because I think the interesting piece is we talk about materiality, but then there are a few that are just you gotta file them.
10:03
SPEAKER_03: There's yeah, you expect, right?
10:04
SPEAKER_03: Change an accountant, right?
10:06
SPEAKER_03: Like things like that.
10:06
SPEAKER_04: You you just you just have to do you have to file some of the corporate governance, the corporate governance stuff.
10:11
SPEAKER_03: Um, and I think one thing that I wanted you to kind of just layer in is kind of the distinction maybe between furnished versus filed.
10:17
SPEAKER_02: This is important in a lot of a lot of questions that we get, you know, companies say, well, should we furnish this or file this?
10:23
SPEAKER_02: So when you furnish it, it's going, it's not going to get into your stream of filed reporting.
10:29
SPEAKER_02: A lot of times companies do that again for reg for reg FD purposes.
10:33
SPEAKER_02: They think it's material, it may not meet any of the other, you know, triggering triggering points for items, but they want to make sure the information is out there.
10:41
SPEAKER_02: But for example, if they do a deal, what's in that item 701 um 8K is not going to be, they're not going to have liability that for purposes of their offering.
10:51
SPEAKER_02: For item 801, it is going to go into their stream of reporting for liability purposes for Reg S3 and their their 34X three.
10:59
SPEAKER_03: That's that's really the I think that's that's helpful.
11:02
SPEAKER_03: Um so Raquel, I want to kind of start with you on just you know thinking about some of the specifics and and you know, I'm just curious kind of what the and Kevin certainly interject, but um, what AK topics do you find yourself consulted on most often and kind of based on those experiences, like what are some of the common pitfalls or best practices that that you think about and can highlight for our listeners?
11:24
SPEAKER_02: Sure, and viewers.
11:25
SPEAKER_02: Remember, I said I carry that treatise with me wherever I go.
11:28
SPEAKER_02: But in particular, right now, and this is kind of all the time, I feel like I spend the most amount of time thinking about earnings 8Ks because of course those are gonna come up every, you know, every quarter.
11:40
SPEAKER_02: And then of course, most of those are gonna be furnished and not filed.
11:45
SPEAKER_02: Um, I would say a best practice is trying to file your earnings 8K on the same day that you file your 10K or 10Q.
11:52
SPEAKER_02: So there's not a gap and you don't have things that happen in between.
11:56
SPEAKER_02: Um, but not all companies do that.
11:57
SPEAKER_02: So we see a lot of a lot of variation.
12:00
SPEAKER_02: Um, right now, given all of the macroeconomic um environment and uncertainty, I think a lot of companies are really focusing on what to put in this earnings 8K.
12:10
SPEAKER_02: Um, for example, do they need to pre-release because so many things have happened?
12:15
SPEAKER_02: Um, is their guidance still good?
12:17
SPEAKER_02: And and do they need to talk about that?
12:19
SPEAKER_02: Do they need to build in new assumptions into the guidance that they're putting out?
12:23
SPEAKER_02: Um, we've even seen companies that when they file their earnings 8k, they actually included a whole new set of risk factors as opposed to waiting until their 10K was filed.
12:34
SPEAKER_02: And people wanted to know well, why did companies do that?
12:37
SPEAKER_02: And it's probably because there's a gap in between and they wanted to open their window or they wanted to repurchase shares or they were going to do an offering in between.
12:45
SPEAKER_02: Right.
12:46
SPEAKER_02: So I think you'll see some 8Ks this season in particular that a lot more robust than you've seen before.
12:52
SPEAKER_03: Well, and and thinking about obvious the obvious topic, right, is tariffs, right?
12:55
SPEAKER_03: And the impacts.
12:56
SPEAKER_03: And I can tell you the the number of questions I've gotten from from clients from from our you know partners out in the field of just like, well, what do we say?
13:04
SPEAKER_03: What do we say?
13:05
SPEAKER_03: When do we and win?
13:06
SPEAKER_03: Yeah.
13:06
SPEAKER_03: Right.
13:07
SPEAKER_03: And so I think, you know, obviously that's the big thing.
13:09
SPEAKER_03: And I think, look, the the beauty of this topic, and then I wouldn't say it's a beauty, you know, a great topic, um, but the positive here is that it impacts everyone.
13:17
SPEAKER_03: And so the moment you know, and you and there is something that's material, you certainly are in a in the best position to actually publish that information, get that out there to the market sooner than later.
13:28
SPEAKER_03: Um, and obviously you do have that, the, the, the requirements, uh, the timing requirements.
13:33
SPEAKER_03: But did you have anything else that you thought?
13:35
SPEAKER_04: No, no, I mean, I think I think that's a great point.
13:37
SPEAKER_04: There's not a it's there's not a specific trick right that says if you're subject to tariffs, there's a there's a new AK to school.
13:43
SPEAKER_04: Yeah, but to the point of the 801, like there may be information you want to get out there.
13:47
SPEAKER_04: So, so certainly I think that's that's something that people are thinking about a lot.
13:51
SPEAKER_04: The only other point that I'll interject, because anytime we're talking about earnings release, I have to interject on this and remind people about non-gap, right?
13:58
SPEAKER_04: I knew you're going there.
13:59
SPEAKER_04: And so, like as as you start talking about some of the earnings, and particularly when there's periods when maybe there's things impacted in, making sure you're thinking about the non-gap guidance.
14:07
SPEAKER_04: It does apply to earnings releases.
14:09
SPEAKER_04: It does apply to uh to if you're doing like a like a slide deck for your uh earnings presentation.
14:16
SPEAKER_03: Uh so I won't ask you whether it's appropriate to non-gap for the impact of tariffs, although you probably have a view on that.
14:23
SPEAKER_04: No, I mean I I think I think it's similar.
14:25
SPEAKER_04: I mean, like certainly quantifying uh what tariffs are, but I think I think taxes, tariffs, things like that are are generally viewed to be normal, normal cost of a business.
14:34
SPEAKER_04: And so I don't think we see a lot of people trying to non-gap.
14:37
SPEAKER_03: But certainly quantifying if you can talk about it.
14:39
SPEAKER_04: But certainly, yeah, it gets more into the quantification.
14:42
SPEAKER_04: And and at this point, it's more forward-looking anyway, right?
14:45
SPEAKER_04: In terms of what what a to the point of like how's it gonna impact our earnings for the year.
14:49
SPEAKER_04: Right, right.
14:50
SPEAKER_04: Um, but but certainly always keeping in mind the non-gap guidance.
14:53
SPEAKER_02: And also I've seen people building in assumptions about tariffs, whether they think they're gonna be able to pass through all the costs or not, and that's built into their earnings releases.
15:02
SPEAKER_03: Yep, that's a good point.
15:03
SPEAKER_03: So one one other thing, Kevin, I wanted to kind of get your your thoughts on, and it really has to do with probably the big one.
15:09
SPEAKER_03: And I know we've we've covered this in in a previous uh video podcast, um, but I want to kind of get your thoughts on just the acquisitions, dispositions portion or requirements in Form AK.
15:20
SPEAKER_04: Yeah, yeah.
15:20
SPEAKER_04: Cause I think, I mean, to your to your question, right?
15:22
SPEAKER_04: I think that's what from the accounting side, that's what we hear the most, where we get the most questions is on acquisitions, dispositions.
15:30
SPEAKER_04: Um, and yeah, the earlier podcasts, which focused, I think, more on acquisitions and dispositions of businesses, it's subject to a significance calculation.
15:39
SPEAKER_04: The maybe importantly, the business determination is the SEC Article 11 definition of a business, not the gap definition of a business.
15:46
SPEAKER_04: We see a lot of companies kind of getting tripped up on that.
15:49
SPEAKER_04: So make sure you're thinking about Article 11 from that perspective.
15:54
SPEAKER_04: Uh, and then those like an acquisition of a business, you have the four-day, but this is the example where uh four business days, you report some information, you get 71 additional calendar days to include the financial statements and performance related to that.
16:08
SPEAKER_04: Um, and then on the disposition side, uh, you don't get that 71 days uh if it's just disposition of a business.
16:16
SPEAKER_03: Um because you have that information already.
16:18
SPEAKER_03: Yeah, theoretically, you can get it from some other party.
16:21
SPEAKER_03: Yeah, it's still, I mean, look, it's still gonna be a challenge.
16:24
SPEAKER_04: Four days if you if you haven't done it before you're closing that disposition, like you're gonna be uh not sleeping very much.
16:31
SPEAKER_04: Um so then the the other piece.
16:33
SPEAKER_04: So this is item 201.
16:34
SPEAKER_04: I should have clarified that, that that we're that we're under here.
16:37
SPEAKER_04: The other item 201 also covers acquisitions and dispositions of assets.
16:43
SPEAKER_04: Um, so things that are not businesses uh under Article 11.
16:49
SPEAKER_04: Um, and it it's kind of it's outside the normal course of business, um, but the significance test there is a little bit different uh from the business.
16:57
SPEAKER_04: It's really more about like how much did you pay for this uh, or like how much did you pay or receive for the for the discarded asset, um, or what's your the equity and the net book value of that asset?
17:08
SPEAKER_04: And and it's 10% is the trigger for this one um based on that number compared to your total, the total consolidated assets.
17:16
SPEAKER_04: So it's a little bit lower trigger, um, which I think so a lot of times people will be thinking about acquisitions and dispositions, and they'll just think about them all the same.
17:25
SPEAKER_04: And yeah, businesses, you get that 20% threshold here, it's it's 10%.
17:29
SPEAKER_04: Um, but in terms of the information that you have to provide there, it's more straightforward.
17:33
SPEAKER_04: What was the date?
17:34
SPEAKER_04: Who is the counterparty?
17:35
SPEAKER_04: How much did you sell it for, or how much did you pay for it?
17:38
SPEAKER_04: Um, and uh, and what are the assets that were involved with that?
17:41
SPEAKER_04: I mean, obviously, I mean, given that, like we talked about the the business and and assets, it's critical to get that, yeah, get that initial determination right because then that tells you which which category you're in.
17:52
SPEAKER_03: The other kind of thing just to think about here, too, right?
17:55
SPEAKER_03: And you we talked about tariffs and just trying to think of like other implications, right?
17:59
SPEAKER_03: And I think it gets to the point of, you know, you could have restructurings, um, could have material impairments, right, as a result.
18:07
SPEAKER_03: Um, and so whether it's your asset groupings or as you're thinking about goodwill.
18:11
SPEAKER_03: So you need to talk a little bit about those 8K requirements.
18:14
SPEAKER_04: So there's item 205 is restructuring, exit, and disposal activities.
18:19
SPEAKER_04: Uh, and and so um essentially you would have to report information there when you have a material uh material restructuring um with material charges, the date, the date that you committed to the action, uh, and the and just a general description of what that action is.
18:36
SPEAKER_04: Um, and then this is one where you know sometimes at that point you may not really know the numbers.
18:41
SPEAKER_04: Uh, and so the the guidance allows you to make just kind of a good faith estimate of of what that charge is gonna be, uh the restructuring charge, uh asset charges, et cetera.
18:52
SPEAKER_04: If you don't have that information, if you can only make a good faith estimate at first, you would come back later when you have better information and file the AKA, an amendment to the AK to report that.
19:02
SPEAKER_04: And then um you also have to break out for both in total and for each major cost, um, the range of estimated costs to be incurred, uh, and then and then also what portion of that is going to require cash expenditures.
19:15
SPEAKER_04: So again, that's all kind of good faith estimates at first, uh, and then follow-up.
19:20
SPEAKER_04: Um, and then in terms of impairments, uh, that's 206, uh, because we like to speak in these little numbers.
19:28
SPEAKER_04: You go around talking to 205, 206, people look at look at your crazy parties.
19:32
SPEAKER_04: I know from experience.
19:33
SPEAKER_04: Um, so for an impairment, you uh, you know, it's triggered off of the date that you determine that a material impairment uh is is gonna be required.
19:41
SPEAKER_04: Um and so you would disclose what are the charges, what are the types of assets that are impacted, um, and and what date you actually made that determination.
19:51
SPEAKER_04: Um and then the same thing, an estimate of the amount uh of the charge that you're gonna incur and how much uh will be cash expenditures again.
20:00
SPEAKER_04: And that's another one where it's a good faith estimate.
20:02
SPEAKER_04: Um and I think uh one thing to note with 206 of for impairments is that if it's part of your quarter-end close or year-end close, uh then, and you're gonna have to have those disclosures in your 10Q or 10K anyway, um, then you don't necessarily need to file that 8K.
20:21
SPEAKER_04: You can just include those disclosures.
20:23
SPEAKER_04: But that's specific to the impairments.
20:25
SPEAKER_04: And it's specific to if it's part of your close, right?
20:28
SPEAKER_04: So we think about like goodwill impairment charges, right?
20:31
SPEAKER_04: You're doing your annual evaluation, right?
20:34
SPEAKER_04: That sort of thing.
20:35
SPEAKER_04: Um, if there's like a, you know, a major event, like a hurricane or a fire, you know, on a given you'd see these days, yeah, then you're not going to be able to argue that that this is part of that extended window.
20:50
SPEAKER_03: And that's a great point because I you you just don't see them that often, right?
20:53
SPEAKER_03: It's just not something that is um because it's it usually seems to be part of of the close.
20:59
SPEAKER_02: Um can I say something about 205?
21:02
SPEAKER_02: Yes.
21:03
SPEAKER_02: So there are a lot more 205s now.
21:06
SPEAKER_02: And I I tend to remind companies that if you're doing a major layoff, you really have to think about whether that impacts an item 205.
21:15
SPEAKER_02: And with that, how to think about the communications plan, because the board has usually made this determination.
21:21
SPEAKER_02: It fits the accounting definition of a um plan of termination, but you have to think about you have the AK deadline, but you haven't told your employees that you're gonna have this.
21:31
SPEAKER_02: So it requires a lot of coordination and turn.
21:34
SPEAKER_03: Collaboration is very important, right?
21:36
SPEAKER_03: Which I think was a key point earlier.
21:38
SPEAKER_03: Um, that's that's appreciate that.
21:40
SPEAKER_03: Um, Raquel, I want to kind of get to section five of Form AK, which covers this kind of range of corporate governance topics.
21:49
SPEAKER_03: Um, and obviously we're, you know, for most county or as we're coming out of the the annual meeting season, um, any specific disclosures or trends that you think companies should be mindful of?
21:58
SPEAKER_02: Sure.
21:59
SPEAKER_02: Well, I'll I'll give Some reminders.
22:01
SPEAKER_02: So since we're coming into the shareholder proposal annual meeting season, not forgetting that if a company has amended their bylaws, that typically doesn't require a shareholder vote, but it does require an 8K.
22:13
SPEAKER_02: And that's an 8K that if you miss it, it puts you into the form S3 eligibility box.
22:20
SPEAKER_02: Another one is meeting results.
22:22
SPEAKER_02: So you have to file an 8K with your meeting results within four business days.
22:26
SPEAKER_02: But also the company has to report how they did how they've decided to handle their decision on the frequency of executive comp.
22:35
SPEAKER_02: That's not required within four days.
22:38
SPEAKER_02: I think you get 150 days or 60 days, depending on the various rules.
22:43
SPEAKER_02: But I always say just go ahead and stick it on that AK with all of the other results because believe it or not, that impacts your eligibility as as well.
22:52
SPEAKER_03: That's that's interesting.
22:54
SPEAKER_03: Um Kevin, I'm gonna turn to you and talk about the the section four.
22:58
SPEAKER_03: We talked about it that applies to to the accounts.
23:00
SPEAKER_03: I know that that you and I, you know, in in our previous roles at the SEC spent a good amount of time on items 4.01 and 4.02 of form AK.
23:09
SPEAKER_03: Um, the staff, you know, obviously they monitor it very closely.
23:12
SPEAKER_03: They're changing auditors, you know, restatements.
23:15
SPEAKER_03: Um can you walk us through the those key requirements for these items?
23:18
SPEAKER_04: Yep, absolutely.
23:19
SPEAKER_04: So so 401 is the um notification of a change uh in the principal auditor.
23:25
SPEAKER_04: Uh, and so there's actually in 401, there's actually two two different events that have to be reported.
23:30
SPEAKER_04: One is the dismissal or refusal to stand for reappointment of the of the current auditor.
23:36
SPEAKER_04: Uh, and then the second is the appointment of a new auditor.
23:39
SPEAKER_04: Now, often we'll see both of those events are being reported in the same AK because there's, you know, the board might go through a process to to solicit maybe a new auditor.
23:49
SPEAKER_04: And so they may make those decisions in connection with each other.
23:52
SPEAKER_04: And so the triggering date may be the same.
23:55
SPEAKER_04: Um, but uh but there are two separate events.
23:57
SPEAKER_04: So I think that's important to keep in mind.
23:59
SPEAKER_04: The on the first one, the the dismissal, or if an auditor refuses to stand for reappointment, there's particular specific information you have to include about whether there's any reportable events, any material weaknesses, uh disagreements, things like that during during the most recent two two full years as well as interim periods since.
24:19
SPEAKER_04: Uh, and then um you would also uh the outgoing auditor also needs to review that disclosure and they would uh they would uh give a letter as well, send a letter to the SECO be included as an exhibit there, uh, which basically says, hey, we've we've read this, we agree with the statements that that could be.
24:35
SPEAKER_03: Presuming they agree.
24:36
SPEAKER_03: Presuming they see letters where they've not agreed.
24:38
SPEAKER_03: Yeah, if they don't agree, yeah, it can be a challenge to deal.
24:41
SPEAKER_03: Yeah, be messy.
24:42
SPEAKER_03: Yeah.
24:43
SPEAKER_04: Yeah.
24:43
SPEAKER_04: Yeah.
24:43
SPEAKER_04: And so, and then on the appointment of a new auditor, the new auditor doesn't have to, there's no that that letter concept doesn't exist there.
24:51
SPEAKER_04: Uh, but similarly, you still have to, there's certain disclosures you have to include about like any whether there's been any sort of coordination with that new auditor in advance of the appointment, um, in terms of like seeking views of that new auditor on on accounting conclusions.
25:04
SPEAKER_04: Essentially, they're trying to get at like, hey, wait a second.
25:07
SPEAKER_04: Are if you're changing your auditor because your old auditor gave you an accounting answer you didn't like, and the new one told you that they would give you a different answer.
25:16
SPEAKER_04: Basically, the AK rules will will require you to include disclosure on that.
25:20
SPEAKER_03: Anything else that you guys, I mean, I one thing I wanted to just kind of mention and or at least ask you, Raquel, is probably something you deal with a lot, is just item 101, just the the AK requirements for entering into contract, like material contracts, whatever, anything, anything you wanted to kind of cover there.
25:35
SPEAKER_03: I imagine you see them quite often, and probably people tend to have different views on whether they think that something's material or not.
25:44
SPEAKER_03: How do you determine whether it's material?
25:45
SPEAKER_03: Then are you filing the contracts?
25:47
SPEAKER_03: Anything to add there.
25:49
SPEAKER_02: Yeah.
25:50
SPEAKER_02: So so one thing is just I think the materiality determination can be tricky.
25:55
SPEAKER_02: And a lot of times companies think that's a determination that somebody outside of the the um the company can make, like their lawyers or their accountants, but it really should rest with the company.
26:06
SPEAKER_02: We can guide you, but it's hard for us to to make that determination.
26:10
SPEAKER_02: The other thing too is it's both qualitative and quantitative.
26:14
SPEAKER_02: And then I would also have to say, um, what else is it?
26:18
SPEAKER_03: You may have disclosures, right?
26:19
SPEAKER_03: Like you may have to put disclosures in your filings around it.
26:22
SPEAKER_03: So that's another thing that like if you put disclosures in your filing, that's a trigger for the staff to maybe issue a comment and say, hey, why didn't you file it?
26:29
SPEAKER_03: Why didn't you file that?
26:30
SPEAKER_03: This AK in this is the contract.
26:32
SPEAKER_02: Other thing is once you make the determination, you don't actually have to file the agreement with that 8K.
26:38
SPEAKER_02: It's gonna have to be on your next quarterly report.
26:41
SPEAKER_02: But I think as a best practice, it's better to just go ahead and file the 8K with the agreement.
26:46
SPEAKER_02: Sometimes you may need to redact, which that there may be a lag there, but I think it's best practice just to file it all together.
26:52
SPEAKER_02: Right.
26:52
SPEAKER_03: Are people re redacting a lot out of them still?
26:54
SPEAKER_02: I mean, I got we I used to see that a lot, but is there still a lot of redacting in the staff is okay with common sense, reasonable redaction is gotcha is what's good.
27:03
SPEAKER_03: Gotcha, that's helpful.
27:04
SPEAKER_03: Um, Kevin, any any other AKs that you mentioned wanted to mention?
27:08
SPEAKER_03: Any topics?
27:10
SPEAKER_04: Uh no, I mean I guess maybe one real quick, um, just thinking about uh because we have the new segment standard and and so segments is fresh in people's mind.
27:19
SPEAKER_04: Uh but one issue that can pop up sometimes, and and so maybe just an example of another situation you might file an AK is if you have a change in your segments, uh, so you're realigning the business.
27:32
SPEAKER_04: And so sometimes companies might do that in the first quarter uh of the of the new year.
27:37
SPEAKER_04: Um, and then they turn around and they file the 10Q that reports that change in segments.
27:41
SPEAKER_04: And then after that, they might do a new registration statement, uh a new S3, right?
27:46
SPEAKER_04: And you have to think about hey, wait a second, this is this is a change in accounting principle because I've changed my segments.
27:53
SPEAKER_04: And so sometimes companies have to um recast essentially recasting.
27:57
SPEAKER_03: I'm glad you mentioned that because I honestly had not even thought about that as we're going through this.
28:01
SPEAKER_03: And that's usually one that people get tripped up on.
28:04
SPEAKER_04: Yeah, yeah, that and disc ops is another one where if you have discops and it really is like once you report it.
28:09
SPEAKER_04: So once that quarter, the quarter where you reported it.
28:12
SPEAKER_03: That's when you have to go back.
28:14
SPEAKER_04: Then essentially your your old financial statements are no longer the right financial statements.
28:19
SPEAKER_04: And so in a new registration statement, you would need to do that.
28:21
SPEAKER_04: So a lot of times what companies do will do is they'll file, they'll file an 8K, an 801 8k that that essentially pulls in like the entire financial statements, the audit report and the full financials reflects the change.
28:34
SPEAKER_04: Um, and then in that registration statement, they'll incorporate the 10K for everything except the except the financial statements, which they'll incorporate from the from the 8K.
28:44
SPEAKER_04: Right.
28:44
SPEAKER_03: Look, I think this has been a great, a great discussion.
28:46
SPEAKER_03: Um, you know, we didn't cover every single 8k trigger, but I certainly think we covered the to me the most important ones.
28:52
SPEAKER_03: I think even the ones, the last two here that that we talked about, I really appreciate you guys kind of bringing those up.
28:57
SPEAKER_03: And um, you know, obviously you can look at the the form itself and see the full list of requirements, but just want to kind of get maybe final takeaways from from each of you.
29:06
SPEAKER_03: And I don't know who wants to start.
29:08
SPEAKER_03: We'll let you start since you're you're our guest.
29:09
SPEAKER_03: You're our guest.
29:10
SPEAKER_02: Thank you.
29:11
SPEAKER_02: Thank you.
29:11
SPEAKER_02: So I'll I'll I'll give three tips.
29:13
SPEAKER_02: The first one is with AKs, I really do think you can plan ahead for a lot of them, thinking about what's material and then reassessing materiality as needed or the cyber, having a cyber drill to just get kind of that muscle memory as to what that feels like.
29:28
SPEAKER_02: Also, just trainings.
29:30
SPEAKER_02: There's lots of AK triggers, lots of people that have this information and staying coordinated.
29:35
SPEAKER_02: Make sure your board knows what these requirements are, as well as people in legal and on the finance team.
29:41
SPEAKER_02: And then the last one is we've been talking about the SEC rules, but I keep pounding on exchange listings because sometimes, even though you have four days, you have to get material information out quickly for exchange listings.
29:54
SPEAKER_02: So that may mean a day or two as opposed to four days.
29:57
SPEAKER_04: Right.
29:57
SPEAKER_03: A great point.
29:58
SPEAKER_04: So uh maybe a couple, a couple of things I'll add in.
30:00
SPEAKER_03: One uh from you don't have three, she had three.
30:02
SPEAKER_04: Uh I think I think I might have three.
30:04
SPEAKER_04: You might be able to come up with three.
30:05
SPEAKER_04: Okay.
30:05
SPEAKER_04: Yeah.
30:06
SPEAKER_04: So the AK maybe an important item is that you could have multiple triggers.
30:10
SPEAKER_04: Uh there are certain transactions that might trigger multiple different item numbers, right?
30:14
SPEAKER_04: So that's great.
30:15
SPEAKER_04: So um make sure that you're thinking through in those AKs.
30:19
SPEAKER_04: So, like one example that comes up a lot is like a reverse merger or like SPAC deals, like we would see this a lot, right?
30:25
SPEAKER_04: Is you're gonna trigger a lot of different items.
30:29
SPEAKER_04: And so you can put it all in one AK and and just make sure you've you've thought through.
30:34
SPEAKER_04: And you could even sometimes you'll they'll put it all in kind of one item and then they'll cross reference but you still yeah, cross-reference for the other items.
30:41
SPEAKER_04: The other point is is yeah, thinking about um, I guess maybe for our a little plug for the FPI population, which does not have the 8K requirement, they're instead subject to a 6K requirement.
30:54
SPEAKER_04: Um, similar types of concepts, not as specific or granular in terms of it being a trigger, uh, but certainly um companies that file on the foreign forums, uh 20Fs, things like that, uh, should also think about the 6K requirements, which essentially if the trigger there is more if you're required to report it somewhere else, maybe in your home jurisdiction and your or or or some other country where you where you have operations.
31:21
SPEAKER_04: Um, the idea there is if it's material, then you should also put it in a 6K, because the idea is US investors should have easy access to it.
31:29
SPEAKER_04: Um, and if this is material information that investors in other countries are getting, then then they should get it in the US as well.
31:34
SPEAKER_03: My final takeaway is you know, when when thinking about it, the staff certainly looks at the form AKs during their reviews of filings.
31:43
SPEAKER_03: And so I think it's important to note that not only do they look at the AKs, but when they look at a filing and they see that there's a material contract or they see a change in audit or they see something that in their mind measures.
31:57
SPEAKER_03: Yeah, and yeah, they're going to look at those AKs and they're gonna issue comments.
32:01
SPEAKER_03: They may ask why an AK has not been filed for a particular uh matter or something that's occurred.
32:06
SPEAKER_03: So I think that's probably the most important piece is that you know they are watching and they will issue those comments.
32:11
SPEAKER_03: And so I think it's it really highlights the importance of some of the comments that you were saying of just being prepared, knowing what's out there, what's required.
32:18
SPEAKER_03: Again, I want to thank you both, Raquel, Kevin, fantastic job.
32:22
SPEAKER_03: Really appreciate your time.
32:23
SPEAKER_03: Thanks for having us.
32:24
SPEAKER_01: Thank you.
32:25
SPEAKER_01: That's our show for today.
32:27
SPEAKER_01: Tune in next week for more fresh episodes so that you never miss any of our audio content.
32:33
SPEAKER_01: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
32:37
SPEAKER_01: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
32:47
SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
32:51
SPEAKER_01: Thanks for tuning in.
33:03
SPEAKER_00: PwC refers to the U.S.
33:04
SPEAKER_00: member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PwC network.
33:11
SPEAKER_00: Each member firm is a separate legal entity.
33:13
SPEAKER_00: Please see www.pwc.com slash structure for further details.
33:20
SPEAKER_00: This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors, including accountants and lawyers.