With the year-end reporting season on the horizon, this Alert highlights new disclosures and other considerations for annual reports on Form 10-K to be filed in 2025. It also discusses potential updates to D&O questionnaires and other year-end matters.
Reminders for Preparing the Annual Report on Form 10-K
Insider Trading Policy Disclosure and Exhibit Filing. In December 2022, the U.S. Securities and Exchange Commission (SEC) adopted new disclosure requirements regarding insider trading policies and procedures (December 2022 rulemaking). Among other things, the December 2022 rulemaking requires that, on an annual basis, companies disclose whether they have adopted insider trading policies and procedures and, if so, file them as exhibits to their Form 10-K.1 If a company has not adopted such policies and procedures, then it must explain why it has not done so. For calendar-year companies, this new disclosure requirement and related exhibit filing will be required in their upcoming Form 10-K for fiscal year 2024.2 The disclosure regarding whether the company has adopted insider trading policies and procedures may be incorporated by reference from the company’s definitive proxy statement3 and, regardless of whether it is provided in the Form 10-K or proxy statement, is required to be submitted in Inline XBRL. The insider trading policies and procedures are required to be filed as an exhibit to the Form 10-K. For more information on these new requirements, please see our previous Alert and Known Trends post.
Timing of Grants of Certain Equity Awards Disclosure and Table. As part of the December 2022 rulemaking, the SEC adopted new disclosure requirements regarding the timing of certain equity awards close in time to the release of material nonpublic information (MNPI).4 Companies are required to discuss their policies and practices on the timing of option awards in relation to their disclosure of MNPI including the information specified in Item 402(x)(1) of Regulation S-K (Reg. S-K). In addition, if, during the last completed fiscal year, the company awarded options (or option-like instruments) to one or more named executive officers (NEOs) in the period beginning four business days before the filing of a Form 10-Q, Form 10-K, or the filing or furnishing of a Form 8-K that discloses MNPI (other than an Item 5.02(e) Form 8-K that discloses a material new option award grant) and ending one business day after the filing or furnishing of such report, then the company must provide tabular disclosure regarding these grants. The tabular disclosure must identify the NEO and include, among other things, the percentage change in the closing market price of the securities underlying the award between the trading day immediately prior to the disclosure of MNPI and the trading day beginning immediately following the disclosure of MNPI. For calendar-year companies, these new disclosures will be required (if applicable) in their upcoming Form 10-K for fiscal year 2024 (or in their proxy statement for their 2025 annual meeting if incorporated by reference).5 These disclosures must be provided in Inline XBRL. For more information on these new requirements, please see our previous Alert and Known Trends post.
Cybersecurity Risk Management, Strategy, and Governance Disclosure: Inline XBRL. As discussed in last year’s reporting season Alert, companies were first required to disclose information regarding their cybersecurity risk management, strategy, and governance in Forms 10-K for fiscal years ending on or after December 15, 2023 (i.e., fiscal year 2023 Forms 10-K for calendar-year companies). Starting with annual reports for fiscal years ending on or after December 15, 2024, companies will be required to provide this disclosure in Inline XBRL. Accordingly, calendar-year companies will be required to submit these cybersecurity disclosures in Inline XBRL in their upcoming Form 10-K filings.6 For more information on these requirements, please see our previous Alert. In addition, although not an annual reporting matter, cybersecurity incident disclosures under Item 1.05 of Form 8-K will be required to be filed in Inline XBRL starting on December 18, 2024.
Clawback Policy and Disclosure Updates. As discussed in last year’s reporting season Alert, companies were required to comply with the clawback disclosure rules, including filing their clawback policy (as required by the applicable listing standards adopted pursuant to Exchange Act Rule 10D-1) as an exhibit to their Forms 10-K filed on or after December 1, 2023. This year, companies should confirm whether any updates were made to their clawback policy since it was last filed. If updates were made, then the updated version should be filed as an exhibit to the Form 10-K in place of the previous version. If no updates have been made, then companies should be able to incorporate the prior year’s exhibit filing by reference.
In addition, companies should review the two checkboxes on the cover page of the Form 10-K relating to whether the filing contains the correction of an error to previously issued financial statements and whether any of those error corrections resulted in a restatement that triggered a clawback analysis. The first box should be checked if the financial statements included in the filing reflect the correction of any error (under applicable accounting standards) to a company’s previously issued financial statements. The second box should be checked if any of the error corrections involve restatements that require the company to undertake a recovery analysis under their clawback policy, even if no recovery is required. If there has been an accounting restatement requiring a clawback, then the company will need to consider what disclosures are needed under Item 402(w) of Reg. S-K and submit those disclosures in Inline XBRL.7 For more information on these requirements, please see our previous Alert and Known Trends post.
Risk Factors Review and Updates. Companies should keep the substance of their risk factors updated as current risks change and new risks emerge. Cybersecurity, generative AI, geo-political conflicts such as in Ukraine and Israel, and climate-related disclosures, should continue to be considered when refining risk factor disclosure, as well as risks specific to the company’s business or industry. Companies should also take care to review and update risk factors, as needed, to reflect actual changes in circumstances or events that have occurred, including changing any hypothetical statements if necessary. Risk factors also should be reviewed in light of changes or additions in other sections of the Form 10-K, such as the business section, management’s discussion and analysis of financial condition and results of operation (MD&A), cybersecurity disclosure, and financial statement notes.
Climate-Related Disclosures. As of the date of this Alert, the SEC’s climate-related disclosure rules remain voluntarily stayed by the SEC and under review by the U.S. Court of Appeals for the Eighth Circuit. For more information on the final climate-related disclosure rules, please see this previous Alert, and for more information on the SEC’s temporary stay, please see this previous Alert. Due to the SEC’s stay order, companies are not required to comply with the SEC’s climate-related disclosure rules while the litigation is pending. However, the litigation does not impact companies’ current obligations with respect to climate-related disclosures and companies should continue to review and consider the Commission Guidance Regarding Disclosure Related to Climate Change issued by the SEC in 2010 (2010 guidance) and the sample comment letter issued by the SEC’s Division of Corporation Finance (Corp Fin) in 2021 (climate comment letter).
The 2010 guidance highlights several existing disclosure requirements that may require climate-specific disclosure including, for example, description of the business, legal proceedings, risk factors, and MD&A. According to the 2010 guidance, the types of disclosures that may be required include disclosure relating to the impact of legislation and regulation, international accords, indirect consequences of regulation or business trends, and physical impacts of climate change. The climate comment letter includes sample staff comments primarily relating to compliance with topics discussed in the 2010 guidance as well as disclosure inconsistencies across issuer disclosure channels. For example, the climate comment letter requested additional disclosure of significant developments in federal and state legislation and regulation and international accords regarding climate change, and to the extent material, the indirect consequences of climate-related regulation or business trends.
In addition, the European Union’s Corporate Sustainability Directive (CSRD) and several climate-related laws enacted in California are proceeding. Companies that trigger these reporting requirements may be required to provide climate-related disclosure in the next several years, and preparations to make such disclosure should already be underway. For more information on the CSRD, please see our previous Alert and Fact Sheet. For more information on the California climate-related laws, please see our previous Alerts, available here and here. For a comparison of the SEC’s climate disclosure rules, the CSRD, and California laws, please see our comparison tool.
Inline XBRL. In recent years, the SEC expanded Inline XBRL requirements in company filings (including the Form 10-K) beyond financial information and cover page data to include, for example, auditor information and cybersecurity disclosure. In September 2023, Corp Fin issued a sample comment letter on XBRL disclosures, which included sample comments relating to Inline XBRL disclosures in the cover page, pay versus performance, and financial statements, as well as missing Inline XBRL presentations in filings. For more information on the sample comment letter, please see our previous Known Trends post.
As a reminder, the following items in the Form 10-K are required in Inline XBRL:
- Cover page—cover page information
- Part II, Item 8—financial statements (including footnotes and schedules)
- Audit report / financial statement section index—identity of the auditor (or auditors) who have provided opinions related to the financial statements presented in the annual report, the location where the auditor’s report has been issued, and the PCAOB ID Number (s) of the audit firm(s) or branch(es) providing the opinion(s)
- Part I, Item 1C—cybersecurity risk management, strategy, and governance required under Item 106 of Reg. S-K
- Part III, Item 11—company actions to recover erroneously awarded compensation required under Item 402(w) of Reg. S-K*
- Part III, Item 11—company’s policies and practices related to the grant of certain equity awards close in time to the release of MNPI, and tabular disclosure of NEO awards required under Item 402(x) of Reg. S-K*
- Part II, Item 9B(b)—disclosure regarding director and officer trading arrangements under Item 408(a) of Reg. S-K
- Part III, Item 10—disclosure regarding whether the company has insider trading policies and procedures required under Item 408(b)(1) of Reg. S-K*
* Items marked with an asterisk may be incorporated by reference from the company’s definitive proxy statement if such proxy statement is filed within 120 calendar days of fiscal year-end.
Share Repurchase Disclosure. In December 2023, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s Share Repurchase Disclosure Modernization Rule (repurchase rule). For more information on the repurchase rule, please see this previous Alert, and for more information on the Fifth Circuit’s ruling, please see this previous Known Trends post. In March 2024, the SEC adopted technical amendments to various rules and forms, including the Form 10-K and Item 703 of Reg. S-K, to reflect the Fifth Circuit’s vacatur of the repurchase rule. The effect of the Fifth Circuit’s ruling and the SEC’s technical amendments was to revert to the rules and forms that existed prior to the effective date of the repurchase rule. Accordingly, with respect to the Form 10-K, disclosure under Item 703 of Reg. S-K is required for any repurchase made during the fourth quarter of the applicable fiscal year. As a reminder, Item 703 requires tabular disclosure of certain information relating to any repurchases of the company’s registered securities in each month of the applicable fiscal quarter.
Description of Securities Disclosure. Item 601(b)(4) of Reg. S-K requires, among other things, the filing of an exhibit to Form 10-K that provides the information required by Items 202(a) through (d) and (f) of Reg. S-K for each registered class of securities, including capital stock, debt, warrants and rights, American Depository Shares, and other securities. Companies should consider reviewing this exhibit on an annual basis to ensure it remains up-to-date, particularly if amendments to the charter or bylaws have been made or if the company has had another material change in its capital stock, like the conversion of all dual-class shares into single-class shares.
SEC Comment Letter Trends. Based on a review of SEC comment letters for the 12 months ended July 31, 2024, and consistent with last year, the top four comment letter topics in periodic filings were: MD&A; non-GAAP financial measures; segment reporting; and revenue recognition. The fifth most frequent comment letter topic changed, with inventory and cost of sales rising to the fifth spot, replacing acquisitions, mergers, and business combinations, which fell to the ninth spot. While the volume of SEC comment letters decreased from 1,200 letters last year to 1,101 letters this year, the overall number of comment letters remains elevated from prior years including 2022 when there were 649 comment letters issued during the same period. The increased volume over the past two years is partly attributable to the increase in the number of public companies, with a surge in companies going public in 2020 and 2021, as well as comments relating to disclosures regarding emerging issues and disclosures required under recent SEC rulemakings. Companies should continue to review disclosure requirements and guidance together with their related disclosures as drafting of the Form 10-K gets underway.8
Section 302 and Section 906 Certifications (CEO/CFO Certifications). Companies should carefully review their Section 302 and Section 906 certifications included as exhibits to their Form 10-K. In particular, a newly public company filing its second annual report is no longer in the transition period established by the SEC and, therefore, its CEO and CFO will need to certify to their assessment of the company’s internal control over financial reporting. These companies will need to 1) update their Section 302 certifications so that the principal executive officer and principal financial officer make all required certifications, and ensure that their Section 302 certifications are updated in subsequent Form 10-Q filings, and 2) update the language in Item 9A, Part II of the Form 10-Ks to include management’s report on internal control over financial reporting and, if applicable, a statement regarding the outside auditor’s attestation report.
Exhibit Index. Companies should take a fresh look at the exhibit index of their Form 10-K. In addition to reviewing their Forms 10-Q and 8-K filed in the last year, companies should consider whether they need to make any updates related to the certificate of incorporation or bylaws, material contracts and amendments (including immaterial amendments to material contracts that were not previously filed with periodic or current reports), the description of the capital stock, or the list of subsidiaries. Any expired or terminated material contracts with no continuing obligations should be removed from the exhibit index. Further, companies should check that each exhibit is hyperlinked to the correct document. When reviewing the exhibit index, check to see whether any previous grant of confidential treatment is due to expire in 2025 so that extensions can be sought, if appropriate.
Potential Updates to D&O Questionnaires
Companies that grant options or option-like instruments (e.g., SARs) to their executive officers could consider adding questions to solicit the information required to determine whether disclosure will be required under Item 402(x)(2) of Reg. S-K. Companies may already be tracking these grants against their disclosure of MNPI throughout the year as part of their option grant policies and procedures. In that case, they may not want to add more questions to their already lengthy D&O questionnaires, but these questions could provide a helpful added check, together with the other executive compensation-related questions, as part of the year-end information-gathering process.
Many companies include extensive director independence and conflicts-related questions in their D&O questionnaires. However, in light of the SEC’s recent settled charges against a former director of a public company for failing to disclose to the board his “close personal friendship” with one of the company’s executive officers,9 companies may want to take a fresh look at their director independence questions and review whether those questions request information regarding nonfinancial or other relationships that might risk affecting the director’s independence from the company or management. While not all friendships or other relationships will affect independence, eliciting this information in the D&O questionnaire can help the company and its legal counsel in reviewing and analyzing these relationships, including determining whether any disclosure may be required.
Other Year-End Matters
Form S-8. Companies with equity plans that provide for automatic increases to the number of shares authorized for issuance thereunder, often referred to as evergreen increases, generally file a Form S-8 annually to register those shares. Companies may want to consider filing the Form S-8 and its exhibits shortly after their Form 10-K to align the auditor procedures for both filings. As with all registration statements, companies must now include the filing fee table as a separate exhibit to the Form S-8 instead of on the cover page, which exhibit must be provided in Inline XBRL for large accelerated filers as of July 31, 2024, and for all other filers beginning July 31, 2025.
In addition, New York Stock Exchange (NYSE) listed companies are required to file a supplemental listing application (SLAP) prior to the issuance of additional shares of a listed security, including shares issued under the company’s equity plans.10 These additional securities may not be issued until the NYSE has authorized the SLAP. Accordingly, an NYSE-listed company should submit a SLAP electronically through Listing Manager for the evergreen increase. Nasdaq does not have a similar filing or notification requirement for evergreen increases to listed companies’ equity plans.
Schedule 13G Filing Deadlines. Compliance with the new Schedule 13G filing deadlines was required as of September 30, 2024. Any Schedule 13G filers (e.g., qualified institutional investors, passive investors, exempt investors) should ensure their initial and amended filings are compliant with the amended rules and filing deadlines. For example, rather than filing an amendment to Schedule 13G within 45 calendar days after the end of the calendar year, exempt investors are now required to consider whether, as of the end of the day at each calendar quarter-end, there was a material change in the information that the filer previously reported on Schedule 13G or amendment thereto. If so, then the filer must file an amendment within 45 calendar days after that calendar quarter-end. If companies are relying on Schedule 13G filings for certain information presented in the beneficial ownership table of their proxy statement, they will need to ensure that they are reviewing the most recent filing. For more information on these requirements, please see our previous Alert and Known Trends post.
[1] Similar requirements apply to foreign private issuers and are required in annual reports on Form 20-F (Item 16J).
[2] See Exchange Act Rules, Compliance & Disclosure Interpretation, Question 120.26. The annual disclosures required under Items 408(b) and 601(b)(19) of Regulation S-K are required in the first filing that covers the first full fiscal year that begins on or after April 1, 2023 (or October 1, 2023 for smaller reporting companies). This means that for December 31 fiscal year-end companies, these annual disclosures are first required to be provided in the Form 10-K or Form 20-F for the fiscal year ended December 31, 2024.
[3] This disclosure is required in Part III, Item 10, of Form 10-K. Accordingly, it may be incorporated by reference from the company’s definitive proxy statement if such proxy statement is filed not later than 120 days after the end of the fiscal year covered by the Form 10-K.
[4] There are no similar requirements for foreign private issuers.
[5] See Exchange Act Rules, Compliance & Disclosure Interpretation, Question 120.26. The annual disclosures required under Item 402(x) of Regulation S-K are required in the first filing that covers the first full fiscal year that begins on or after April 1, 2023 (or October 1, 2023 for smaller reporting companies). This means that for December 31 fiscal year-end companies, these annual disclosures are first required to be provided in the Form 10-K or Form 20-F for the fiscal year ended December 31, 2024.
These disclosures are required in Part III, Item 11, of Form 10-K, but may be incorporated by reference from the company’s definitive proxy statement if such proxy statement is filed not later than 120 days after the end of the fiscal year covered by the Form 10-K.
[6] These disclosures are required in Part I, Item 1C, of Form 10-K, and are set forth in Item 106 of Reg. S-K. Similar requirements apply to foreign private issuers and are required in annual reports on Form 20-F (Item 16K).
[7] Similar requirements apply to foreign private issuers and are required in annual reports on Form 20-F (cover page, Item 6.F.). As with other Item 402 disclosures, this disclosure is required in Part III, Item 11, of Form 10-K, but it may be incorporated by reference from the company’s definitive proxy statement if such proxy statement is filed not later than 120 days after the end of the fiscal year covered by the Form 10-K.
[8] See Deloitte, Roadmap: SEC Comment Letter Considerations, Including Industry Insights, November 2024, available at https://dart.deloitte.com/USDART/pdf/c0c78948-e20b-11e8-8992-71b1f00939dc.
[9] See SEC v. Craigie, No. 1:24-cv-07382 (S.D.N.Y. 2024).
[10] See Section 703 of the NYSE Listed Company Manual.
