Filing Your Financial Statements Late Can Lead to Serious Consequences.
Late filings lead to a loss of investor confidence, which can result in lower stock prices for your company, as well as serious financial penalties. For example, in 2021, the SEC fined eight companies $250,000 for failing to file a proper Form NT (not timely) with their late filings. Furthermore, companies that are delinquent filers are unable to take advantage of using shorter form registration statements in order to raise additional funds in the capital markets. For public companies, these issues can damage current and future business performance.
To avoid filing late financial statements, it’s important to understand what leads to late filings in the first place. Here are three common reasons companies file their financial reports past the deadline.
1: Goodwill and Intangible Asset Impairment Testing
Part of a company’s responsibility when reporting its financials is to make an accurate assessment of the value of its goodwill and intangible assets.
A decline in general economic conditions, a change in the demand for a company’s products or services or a continued decrease in share price are all triggering events that can significantly impact the value of a company or its reporting units. This decrease in value could lead to an impairment of a company’s goodwill and intangible assets.
Companies must determine whether a full impairment test is needed at quarter end or year end. If a full impairment test is needed, companies will need to seek support to ensure the test is performed in a timely manner and that controls around the identification of the impairment indicators as well as the controls around the impairment testing are adequately documented and tested.
2: Need for Supplemental Technical U.S. GAAP Accounting Knowledge
Generally accepted accounting principles (GAAP) can be confusing for companies because GAAP-metrics can be very different from the way a business measures its own performance. Companies need to ensure they have the right technical U.S. GAAP accounting knowledge in place or they risk becoming delinquent filters.
In each reporting period, there are multiple technical GAAP requirements and challenges public companies must address in very short periods of time. Without the right personnel, it can be nearly impossible to do so before the filing deadline.
Typical indicators that a company doesn’t have the necessary GAAP knowledge are that they’ve received multiple proposed adjustments during previous audits or have received material weaknesses in prior filings. Companies that struggle with basic GAAP reporting are likely unprepared for additional complex issues that may arise.
3: Detection of a Misstatement in Historical Financial Records
When a company detects a misstatement in its historical financial records, it is responsible for determining whether it was material by following an SEC-mandated process. If a misstatement is not material, the company must have the proper documentation in place to present its findings to its auditors and potentially to the SEC.
If the misstatement is material, however, the company must take more significant action, including reissuing past financial statements.
Any time a company finds a misstatement in its historical financial records, it is at risk of a late filing. Companies must determine the materiality of the misstatement in accordance with Staff Accounting Bulletin (SAB) 99, prepare to restate necessary prior filings and assess their internal controls as they relate to the detected misstatement. Taking these steps is both time-consuming and labor-intensive.
Companies that have had repeated proposed adjustments from their auditor should be aware that they may discover additional historical misstatements, further complicating the process.
What to Do When Facing a Late Filing
Firms that offer financial reporting services can help companies avoid or navigate a late filing. Ideally, these firms are engaged for the entire financial reporting process. However, even if a company waits until a late filing is imminent, it’s not too late to reach out.
If a company feels they are in danger of a late filing, they should first determine what’s causing the delay. They should gather as much information and documentation as possible related to their financial report, so they have everything they need on hand. Then, they should reach out to a third-party firm for financial reporting services.
When choosing a firm, there are several characteristics companies should look for. They should choose a firm that has deep experience in SEC reporting requirements, can address technical issues and has relevant industry experience. These capabilities are important to providing the proper support in the event of a late filing.
Tying It All Together
Any number of unforeseen issues can lead to a late filing which can have serious repercussions. Companies can decrease the likelihood they’ll need to file late by engaging with a third-party firm for help throughout the full financial reporting process. However, a third-party firm can be brought in at any stage of the financial reporting process to provide support and help navigate complex technical challenges.
Written by Robert Trinchetto. Copyright © 2022 BDO USA, LLP. All rights reserved. www.bdo.com