Form 10-K, an annual report filed by US-based public registrants, is the most comprehensive source of information regarding a company’s financials and its underlying business. These reports are thoroughly scrutinized by investors and other users, which explains why they need to be promptly amended in the event of an error or material information is missing or omitted. Although amended filings can raise concern for investors and other stakeholders (especially if filed to correct material errors), some amendments are filed for mundane reasons.
In this analysis, we look at the primary reasons NYSE and Nasdaq companies provided for having to file amended 10-Ks in 2018.
There were roughly 400 10-K/As filed in 2018, an 18% increase from the 340 filed in 2017.
In 2018, the most common primary explanation given for a 10-K/A was to incorporate the information required in Part III. This information, Items 10-14, can be filed either within the original 10-K, proxy statement or an amended 10-K no later than 120 days after the period end. An amendment to incorporate Part III is a technical amendment and 10-K/As filed for this reason should not raise concerns. Here’s an example:
We are filing this Amendment No. 1 on Form 10-K/A to amend our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 20, 2018 (Original Filing), to include the information required by Part III of Form 10-K. The Part III information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. The information required by Items 10-14 of Part III is no longer being incorporated by reference to the proxy statement relating to our 2018 Annual Meeting of Shareholders. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing is hereby deleted. This Amendment No. 1 is not intended to update any other information presented in the Original Filing.
Auditor Reports were cited as the second most common reason for filing an amended 10-K. In 2018, 49 of the amended filings, or 12% of the population evaluated, were filed for that reason, a 5% increase from 2017.
This Amendment No. 1 is being filed solely to include the phrase “and the related notes (collectively referred to as the “financial statements”)” inadvertently omitted from the “Report of Independent Registered Public Accounting Firm” in Part II, Item 8 of the Original Filing.”
The reason for this uptick could, partially, be a result of new auditor report requirements in AS 3101, adopted by the PCAOB on June 1, 2017. (Stay tuned for an upcoming blog that focuses more on these requirements.)
Missing signatures and exhibits were cited as the third most common reason for an amended 10-K (10% in 2018). These 10 K/As are often related to typographical errors or other small issues that do not raise alarms. Other amendments in that category include issues related to re-filing of confidential exhibits following the reception of SEC comments, which are of more interest. (Note: In 2018, there were fourteen 10-K/As that were filed in response to comments from the SEC.)
Trevena, Inc. (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Form 10-K”) only to re-file Exhibits 10.45 and 10.46 in response to comments the Company received from the Securities and Exchange Commission on a confidential treatment request submitted by the Company for certain portions of such Exhibits in the Form 10-K.”
Financial restatements were the fourth primary explanation provided for the filing of an amended 10-K in 2018. Material restatements often go hand-in-hand with material weakness in internal controls over financial reporting. Filings that give financial restatement as a reason for a 10-K/A should raise some questions and concerns for investors and other stakeholders.
This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K of Workhorse Group, Inc. (the “Company”) for the fiscal year ended December 31, 2017 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2018 (the “Original Filing Date”).
This Amendment is being filed to correct the balance of the Company’s accrued liabilities account and an error relating to the improper exclusion of inventory in transit as of December 31, 2017. Accordingly, we are restating: (i) our Consolidated Balance Sheet and our Consolidated Statement of Stockholders’ Equity (Deficit), consolidated as of December 31, 2017 and our Consolidated Statements of Operations and Consolidated Statements of Cash Flows cash flows for the years then ended. The applicable notes to the consolidated financial statements as well as the relevant portions of Items 5, 6 and 7 have also been updated for consistency with the restated consolidated financial statements.
In conclusion, although some of the reasons for filing a 10-K/A are mundane in nature (such as the Part III requirements), other reasons could be indicative of process weaknesses or other underlying issues.
Audit Analytics tracks amended filings and the reasons that trigger them. If you would like more information regarding these filings or comment letters, email us at firstname.lastname@example.org or call (508) 476-7007.