Post–Sarbanes-Oxley Act (SOX) Reports - dummies

Post–Sarbanes-Oxley Act (SOX) Reports

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Registration with the SEC is a milestone for companies going public, but it’s only the beginning of the reporting relationship. After a company is registered as an issuer of securities, it’s subject to annual and periodic reporting requirements that extend over the life of the company. SOX dramatically changes the content, depth, and frequency of the reports — the 10-K, 10-Q, and 8-K — that must be filed with the SEC.

SOX shortens the deadlines for filing annual and quarterly reports for a certain class of large public companies referred to as accelerated filers. These shortened deadlines require that reports be filed within 60 days rather than 90 days after the close of the reporting period.

Form 10-K

Form 10-K is an annual report that companies must provide to their investors and make publicly available on the SEC database. Many companies seize this opportunity and make their annual reports glossy marketing tools that tout the growth and accomplishments of the company over the past year. They know their 10-Ks will be reviewed by existing and prospective investors as well as securities rating companies.

SOX-mandated enhancements to 10-K annual reports include:

  • An internal control report that states that management is responsible for the internal control structure and procedures for financial reporting and that it assesses the effectiveness of the internal controls for the previous fiscal year

  • A requirement that all financial reports filed with the SEC reflect corrections and adjustments made to the financial statements by the company’s auditors

  • Disclosure of all material off–balance sheet transactions and relationships that may have a material effect on the financial status of an issue

  • Disclosures of changes in securities ownership by management, directors, and principal stockholders, and information on whether these companies have adopted a code of ethics

Form 10-Q

Form 10-Q is a quarterly supplement to the annual 10-K report; it contains updates to the annual disclosures. 10-Q reports provide a more current view of financial performance than annual reports, and analysts often compare the actual data contained within the 10-Q to prior projections that may have been released by overly optimistic corporate management.

Form 8-K

Form 8-K is a short and simple form that a company must file when certain types of events occur, such as the ceasing of a commercial activity or the departure of company officers or directors.

The list of events that trigger the filing of an 8-K has grown over the years, particularly as a result of SOX. The content of Form 8-K is limited to a few salient facts about the triggering event.