On April 11, 2025, the Staff of the SEC's Division of Corporation Finance released six Compliance and Disclosure Interpretations (“C&DIs”) that address the Form 10-K restatement checkboxes and related disclosures under Item 402(w)(2) of Regulation S-K. The new guidance provides public companies with more clarity regarding the disclosures associated with the recovery of erroneously awarded incentive-based compensation.
As a refresher, the SEC's clawback rules—which took effect in late 2023—require issuers listed on the New York Stock Exchange and NASDAQ to adopt policies to recover or “claw back” incentive-based compensation erroneously received by current or former executive officers following an accounting restatement.
A summary of the new C&DIs is below:
Form 10-K Cover Page – Restatement Check Boxes
- Question 104.20: When a company reports a change to its previously issued financial statements in an Annual Report, it should look to GAAP guidance to determine whether the change represents the “correction of an error” for purposes of marking the first check box on Form 10-K. Accordingly, when the company's financial statements included in the filing have been revised to reflect the correction of an error to previously issued financial statements, the company must mark the first check box—regardless of whether a restatement was required. The C&DI notes that this includes “Big R” restatements and “little r” restatements, but excludes “out-of-period adjustments” because—in those instances—the previously issued financial statements have not been revised.
- Question 104.21: If a company makes an accounting restatement but later determines under its clawback policy that no recovery is necessary, the company must still check the second box on Form 10-K to indicate that a clawback recovery analysis was required by such restatement, including when (1) no executive officer received incentive compensation during the relevant period; or (2) executive officers received incentive compensation, but such compensation was not based on a financial reporting metric impacted by the restatement. Finally, the company should also briefly explain why its clawback policy required no recovery.
Check Boxes and Item 402(w)(2) Disclosure
- Question 104.22: Using the same facts as Question 104.21, this C&DI supposes that after filing an amendment to its year 1 Annual Report with both check boxes marked, a company includes the same restated financial statements in its subsequent year 2 Annual Report. The guidance states that the company is not required to mark the check boxes on its year 2 Annual Report so long as there are no additional restatements. However, the company must include the Item 402(w)(2) disclosure in its proxy or information statement filed in year 3 since the restatement occurred “during or after” the “last completed fiscal year.”
- Question 104.23: This C&DI posits that a company in year 3, before it files its year 2 Annual Report, discovers that a “little r” restatement of its previously issued year 1 financial statements is required. The company applies its clawback policy, determines no recovery is necessary, and checks both Form 10-K check boxes on its year 2 Annual Report. In this scenario, if the company in its year 2 Annual Report provides the disclosure required by Item 402(w)(2) of Regulation S-K, the company is not also required to make the same disclosure in its year 3 Annual Report—even though the restatement occurred “during or after” year, as long as there are no additional facts that would impact the conclusion of the initial clawback analysis under Item 402(w)(2).
Timing of Restatement Disclosure
- Question 104.24: When a company initially reports a restatement on a filing that does not include a check box requirement—such as Form 8-K or a registration statement—the company must mark the check boxes on the next Annual Report that includes the restated financial statements.
- Question 104.25: If a company determines during its fourth quarter that it must restate financial information from its first, second, and third quarters of that year, the company is not required to mark the check boxes on that year's Annual Report since the restatements do not impact the annual periods included in that Annual Report, notwithstanding any disclosures about the interim restatements in a footnote to the annual period financial statements. However, the company must provide the Item 402(w) disclosure in its Form 10-K or proxy or information statement since, for purposes of that disclosure, an accounting restatement is not limited to one that impacts annual periods.
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