This update summarizes new disclosure requirements and other things to keep in mind as you prepare your 10-K and 2025 annual meeting proxy statement.
New Disclosure Requirements | |
---|---|
Equity Award Grant Practices |
Under Reg. S-K Item 402(x), a company must provide:
The disclosure is required in Part III of the 10-K (but can be incorporated therein from the proxy statement) and must be tagged in Inline XBRL. The final rules were adopted in December 2022 and are available here. Some companies are revisiting their equity award grant practices to determine if disclosure would be triggered by the new rules and, if so, considering timing grants to avoid such disclosure (e.g., scheduling regular grants for a day that is more than one business day after the filing of its 10-Q/10-K and scheduling all new hire grants for a preset date (e.g., on the last business day of each month)). |
Insider Trading Policies | Under Reg. S-K Item 408(b), a company
must disclose whether it has adopted policies and procedures
governing the purchase, sale and/or other dispositions of its
securities by directors, officers and employees or the company
itself (e.g., share buybacks) that are reasonably designed to
promote compliance with insider trading laws and applicable listing
standards, and if not, why not. The disclosure is required in Part
III of the 10-K (but can be incorporated therein from the proxy
statement) and must be tagged in Inline XBRL. In addition, the company's insider trading policies and procedures must be filed as Exhibit 19 to its 10-K. The final rules were adopted in December 2022 and are available here. If it has not already, a company should consider amending its insider trading policy to reflect updates and trends related to: (i) Rule 10b5-1 and plans adopted thereunder; (ii) the treatment of gifts; and (iii) the scope of trading restrictions in the securities of other companies in light of the SEC's victory in the Panuwat "shadow trading" case. |
Somewhat New Disclosure Requirements | |
Rule 10b5-1 Trading Plans | Although not new for the upcoming 10-K, Reg. S-K Item 408(b) requires disclosure relating to the adoption, modification or termination of Rule 10b5-1 and non-Rule 10b5-1 trading plans by directors and officers during the applicable quarter (i.e., the fourth quarter for the 10-K). |
Clawback Policies | Although not new for the upcoming 10-K, exchange-listed companies were required to adopt clawback policies by December 1, 2023, and the policy was required to be filed as an Exhibit 97 to its 10-K. If your clawback policy has been amended since it was last filed as an exhibit, file the current version with the upcoming 10-K. |
Clawback Recoveries |
Under Reg. S-K Item 402(w), if, during or after the last completed fiscal year, a company had to prepare an accounting restatement that required a clawback or there was an outstanding balance of erroneously awarded compensation relating to a prior restatement, certain information must be disclosed in its proxy statement. If an accounting restatement was prepared during the prior fiscal year but the company determined that erroneously awarded compensation did not have to be recovered, the company must disclose why this determination was reached under its clawback policy. The disclosure is required in Part III of the 10-K (but can be incorporated therein from the proxy statement) and must be tagged in Inline XBRL. |
Checkboxes on 10-K Facing Page | Last year's 10-K for the first time included checkboxes on the facing page requiring the company to indicate (i) whether its financial statements reflected a correction of an error to previously issued financial statements and (ii) whether any error correction resulted in a restatement requiring a clawback analysis of incentive-based compensation received by any of the company's executive officers. |
Cybersecurity Risk
Management Disclosure in Inline XBRL |
Last year's 10-K for the first time required companies to disclose information regarding their cybersecurity risk management. For 10-Ks filed for fiscal years ending on or after December 15, 2024, this disclosure must be tagged in Inline XBRL. Similarly, as of December 18, 2024, cybersecurity incident disclosures under 8-K Item 1.05 must be tagged in Inline XBRL. |
Hot Topics | |
Artificial Intelligence |
According to a February 2024 Bloomberg article, 41% of S&P 500 companies mentioned AI in their 2023 10-Ks, up from 35% in 2022 and 28% in 2021. According to the article, a majority of the disclosures focused on the risks of AI, while others focused on its benefit to the company's business. In an April 2024 speech, Gubrir S. Grewal, the former Director of the SEC's Division of Enforcement, provided guidance on preparing for, and addressing, potential AI-related risks, and reminded companies to avoid engaging in "AI-washing" in violation of federal securities laws (e.g., statements regarding a company's use of AI that are materially false or misleading). Grewal suggested that companies focus on the three general principles of "proactive compliance" – education, engagement, and execution.
As to individual liability for a company's disclosure regarding security risks from AI, Grewal stated that the SEC will generally look at (i) what the person actually knew or should have known, (ii) what the person actually did or did not do, and (iii) how that measures up to the SEC's rules. |
The State of Disclosure Review |
In The State of Disclosure Review statement issued in June 2024, Erik Gerding, Director of the SEC's Division of Corporate Finance, highlighted AI as a disclosure priority, noting that an increasing number of companies mention AI in their periodic reports (in risk factors, business descriptions and MD&A). He flagged that disclosure may be warranted about how a company uses AI and the risks related thereto and about the board's role in risk oversight. Gerding noted that the SEC Staff will consider how companies are describing AI-related opportunities and risks, including, to the extent material, whether or not the company:
Gerding also noted that the SEC Staff will review filings to assess compliance with recently adopted rules regarding:
|
Earnings Calls and MD&A Disclosure | In comment letters issued in connection with 10-K reviews in 2024, the SEC staff asked about why a particular statement a company made on an earnings call was not also disclosed in MD&A (e.g., why a strategy mentioned on an earnings call was not discussed in MD&A, and whether metrics mentioned on an earnings call should be disclosed in MD&A). In light of the above, companies should consider whether their MD&A and other disclosure in periodic reports reflects all material information that will be discussed on their earnings call. |
Click here to read more.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.