Insights

It's early February 2025 and your public company, like most public companies with a December 31 fiscal year-end, is halfway through the intense annual reporting cycle to meet the Securities and Exchange Commission (SEC) 60-day or 75-day Form 10-K filing deadline. While your accounting and finance teams work diligently to complete the annual reporting cycle, and simultaneously achieve current period goals, it is now time to merge and focus on proxy and annual shareholder meeting requirements.  

This requires navigating the complex transition from completion of the annual reporting cycle to proxy reporting and the coordinated collaboration of transfer agents, printers, legal counsel, executive officers ("officers"), board of directors members ("directors"), and others to determine deadlines, timelines, and this year’s strategic shareholder proposals. While the above is nothing new, in this blog we are revisiting some of the new disclosures for this filing season impacting Form 10-K and 14A filings.

Erroneous Compensation – Form 10-K Cover Changes: Two New Check Boxes

Background

In late 2022, the SEC adopted and implemented Exchange Act Rule 10D-1, which required listed companies to perform an analysis to determine the impact of erroneously awarded compensation and various disclosures around the impact. They must also include the disclosure of a policy related to such compensation recovery (See SEC Fact Sheet - 10D-1). The required compensation recovery policy has been termed by many as a “Clawback Policy." The SEC has designated the policy as Exhibit Item 97, “Policy Relating to Recovery of Erroneously Awarded Compensation." [See the Securities Exchange Act of 1933 (“SEC Act”) § 229.601 (Item 601) Exhibits for full details].

New Developments

To highlight the results of analysis required by Rule 10D-1, this year the SEC has added two new checkboxes to the cover page of Form 10-K related to the findings and results of required compensation recovery analysis (See Form 10-K). See excerpts below of the new required checkbox disclosures. 

• "If securities are registered pursuant to Section 12(b) of the Act, indicate by checkmark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements."

• "Indicate by checkmark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b)."

Required Timing

The form amendment requiring the new checkboxes went into effect on January 27, 2023, and must be present in filings after the effective date but not checked if not yet applicable to the entity.

As noted below in Question 121H.01, the listing standards reference above were not required to be effective until November 28, 2023, and issuers subject to such listing standards are not required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective.

Additionally, the Commission indicated it does not expect compliance with the disclosure requirements until issuers are required to file a compensation recovery policy under the applicable exchange listing standard.

In short, while the checkboxes and other disclosure requirements are in the rules and forms for 2023, the Commission indicated it does not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard.  As such, issuers are not required to check the boxes until they are subject to the applicable listing standards (See SEC - Exchange Act Rules - Question 121H.01)

NEW Regulation S-K: Item 408 - Insider Trading Arrangements and Policies

Background

The SEC is adopting the below amendments in response to concerns about the abuse of rules governing security trades based upon material nonpublic information (insider information) in ways that harm investors and undermine the integrity of the securities markets.  In addition, the SEC seeks to provide affirmative defenses to trading based on material nonpublic information in insider trading cases.  These new amendments vary from new disclosure requirements, adoption of policies and procedures, a new exhibit, and changes to Section 16 Forms.

*Item 408(a)

Under this new rule, issuers are required to disclose quarterly, and in annual filings, whether any director or officer has adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the registrant which is intended to satisfy conditions of Rule 10b5-1 or any *non-Rule 10b5-1.  New and amended disclosures require a description of **material terms such as the date on which the director or officer adopted or terminated trading arrangements, the duration of the arrangement, the number of securities purchased or sold, and equity compensation awards made close in time to the issuer's disclosure of material nonpublic information. Additionally, the above disclosures are required to meet Interactive Data (XBRL) file requirements.

*Item 408(b)

Under the new rule issuers are required to disclose whether the issuer has adopted insider trading policies and procedures governing the purchase, sale, and other disposition of the issuer’s directors, officers, and employees designed to comply with insider trading laws, and regulations.  Like the above, these new disclosures are also required to meet Interactive Data (XBRL) file requirements. Additionally, under the new rules, issuers are required to file their policies and procedures as an exhibit to the issuer's periodic filing.  The SEC has designated the Exhibit as Item 19, “Insider trading policies and procedures”, see Securities Exchange Act of 193 (“SEC Act”) § 229.601 (Item 601) Exhibits.

As an alternative, issuers are permitted to rely on their filed Code of Ethics if such Code of Ethics has been filed as an exhibit as defined and pursuant to SEC Act Item 406 – Code of Ethics, and if such Code of Ethics includes required policy and procedures which would satisfy the requirements described in *Item 408(b).

Section 16 Disclosures

Issuers should also be aware of and familiarize themselves with new Section 16 disclosures and Form 4 and Form 5 changes impacting executive officers and directors. Beyond the discussion above, the SEC has adopted changes which include new boxes to Form 4 and Form 5, as well as new required disclosures to identify officer and director transactions which were made pursuant to Rule 10b-1 plans, requirements, and certain types of transactions by directors and officers involving gifts of securities.

Timing of Disclosure of Insider Trading Policies and Procedures

Effectually for calendar year-end companies the new disclosures are required to be included in their annual reports on Form 10-K in fiscal 2025 for the 2024 fiscal year.  As specifically described in the final rules, issuers are required to disclose insider trading policies and procedures in the first filing that covers the first full fiscal period which begins on or after April 1, 2023 (or October 1, 2023, for Smaller Reporting Companies).  See Exchange Act Rules - Question 120.26 and 120.7 for guidance related to specific filing requirements in Form 10-Q, Form-10-K, Proxy, and Information statements and SEC.gov - SRC Compliance Guide for Insider Trading Arrangements and Related Disclosures for information related to Smaller Reporting Companies.

How Can BGSF Help?

Navigating from the completion of the Annual Reporting Cycle to the successful completion of the 2025 Proxy Season can be complex and intense, but it does not have to be.  BGSF's in-house experts are available to consult, navigate, and support clients through this transition successfully.  We can provide experienced professional consultants who can lead your team through this process and provide the necessary insight and guidance through this transition.  Our consultants not only have experience working with and guiding internal accounting and finance teams but also experience and exposure to working successfully with C-Suite officers, directors, in-house and external legal counsel, transfer agents, and external audit teams.

Not looking for someone to lead the transition, but could use experienced and professional support? At BGSF we have experienced bench and vetted professional consultants who can provide professional support via staff augmentation arrangements.  Our experienced team members can support your finance and accounting teams based on the needs of the role to ensure positive contributions to team success and goals.  Our team members have various capabilities, knowledge, and expertise. Let us know what skill sets you are seeking.  Whether it is someone with specific expertise or experience, or certain software or processes, we can help. Whether your teams are dealing with increased loads due to recent transactions, new strategic initiatives, or loss of key personnel, BGSF can help carry the load.  Reach out and let us know how we can support you today. BGSF’s Business Consulting & Financial Risk Advisory group provides services in: Internal Audit, SOX, & Process Optimization, Mergers & Acquisitions, Technical Accounting & Financial Advisory, and Integration & Accounting Services. Reach out and let us know how we can support you today.

Disclaimer

We recommend readers read, in full, the attached SEC-linked guidance, perform independent research, and consult with your internal finance and legal teams and experts for a complete understanding of all implications for your Company. The above is intended to provide a helpful, professional, yet concise, summary of new SEC requirements for the current reporting period. The above is not binding legal, accounting, or reporting advice.  Again, reach out and let us know how we can support you today.

Happy filing, and we look forward to hearing from you.

*See SEC Act § 229.408 Insider trading arrangements and policies for full description of items (a), (b) and (c).

** See SEC Act § 240.10b5-1 Trading “on the basis of” material nonpublic information in insider trading cases for additional information related to Rule 10b5-1.

***See SEC Act § 229.1004 – Terms of the transaction for definition of material terms.