SEC Enforcement Highlights Late Filing Disclosure Risks

On April 29, the SEC’s Enforcement Division announced charges against eight companies for failure to disclose complete information in Form NT (non-timely). The companies delayed issuing financial statements due, at least in part, to errors in previously issued financial statements, but failed to notify the public of those possible errors in Form NT.

Form NT is used to notify the public that a company will not be able to issue their financial report in a timely manner. The issuance of Form NT 10-Q allows companies up to five additional days to issue quarterly financial statements, while the issuance of NT 10-K or NT 20-F allows companies up to fifteen additional days to issue annual financial statements. A description of the reason for the delay is required to be disclosed in Part III of the Form NT, and an explanation of anticipated changes in financial results are required in Part IV Section 3 of the Form NT.

Late Filings by Year

The percentage of companies that used Part IV Section 3 to disclose an anticipated change in financial results has grown from 16% in 2018 to 22% in 2020. This is due, in part, to the adoption of new accounting standards, such as revenue recognition, leases, credit losses, and mergers & acquisitions.

However, the disclosure of a possible correction of an error in Form NT is uncommon. Only about 2% to 3% of companies that issued a Form NT between 2015 and 2020 disclosed a possible correction of an error as a reason for the delay in filing quarterly or annual financial statements in either Part III or Part IV Section 3 of Form NT.

The SEC focused on the eight companies identified in the press release because of the timing of the correction announcements. Each of the companies disclosed an error correction within four to fourteen days of issuing their Form NT, without including disclosure related to the errors.

The SEC’s Form NT action is reminiscent of the 2019 settlements for longstanding internal controls over financial reporting (ICFR) failures. It serves as a reminder that the SEC Staff is focused on ensuring that investors are receiving accurate, timely, and complete information. In the latest release, Acting Director of Enforcement, Melissa R. Hodgman, noted “we will continue to use data analytics to uncover difficult to detect disclosure violations.”

Audit Analytics’ Late Filings and Restatements databases can help identify these and similar disclosure violations.

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