By James Hamilton, J.D., LL.M.
Carol Stacy, the chief accountant in the SEC's Division of Corporation Finance, has issued guidance for companies that must restate their previously issued financial statements to correct accounting errors relating to the issuance of stock option grants. The guidance will allow companies to restate in one filing for a number of years rather than separately amending all of the previously filed reports. By reporting all of the information in one filing, companies believe it will more clearly reflect the impact of the restatement.
Stacey said the staff will not raise further comment with respect to a company's need to amend prior 1934 Act filings to restate financial statements and related MD&A if the company amends its most recent Form 10-K and includes certain comprehensive disclosure outlined in her letter. If a company's next Form 10-K is due within two weeks of the amendment the company would file in response to the guidance, Stacey advised that the staff would not comment if the company includes the specified disclosure in the next Form 10-K rather than in an amendment to the most recent Form 10-K.
The disclosure in the Form 10-K or 10-K amendment must include an explanatory note at the beginning that discusses the reason for amending the financial statements. The selected financial data for the most recent five years as required by Regulation S-K Item 301 must be disclosed in columns that are labeled "restated."
The MD&A based on the restated annual and quarterly financial information must explain the operating results, trends and liquidity during each interim and annual period that is presented. The interim period discussion may be incorporated into the annual period discussion or presented separately. The audited financial statements for the most recent three years should be restated, as necessary, and include columns that are labeled "restated."