SEC Matters

• DOI: http://doi.org/10.1002/jcaf.22243
• Author: Donald A. Walker
• Published date: 01 January 2017
• Date: 01 January 2017

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© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22243

SEC Matters

Donald A. Walker Jr.

PREPARING FOR THE YEAR-

END CLOSING PROCESS

As this column is pub-

lished, most public company

staffs are preparing for a

December 31, 2016, closing

and the various actions and

committee meetings that must

happen to define and support

required public disclosures.

The financial closing

process requires income and

expense cutoff procedures,

valuation estimates and

determinations, assessment of

contingent liabilities including

pending or threatened or active

litigation, and finally evalua-

tion of the entity to continue

as a going concern for the

following year. The output of

the company’s process is the

financial statements prepared

in accordance with Regulation

S-X, and the outputs of the

independent auditors’ proce-

dures are the reports on the fair

presentation of the financial

statements and the adequacy of

the company’s internal controls

and procedures.

The disclosure closing

process is a more comprehen-

sive process that includes the

preparation and presentation

of the financial statements and

independent auditors’ reports,

but also includes preparation

of required disclosures about

the company and its business

and its operations and finances

for the preceding years. To

assure timely, accurate, and

comprehensive disclosures, the

overall disclosures are reviewed

by the chief executive officer

and principal accounting offi-

cer who must certify the public

filings, but are also reviewed by

various corporate committees

including the corporate disclo-

sure committee, audit commit-

tee, and board of directors. The

output of the disclosure closing

process includes comprehen-

sive disclosures in the Form

10-K (or Form 20-F for foreign

private issuers) as required by

Regulation S-K.

Early in the disclosure pro-

cess, often as little as 20 days

after fiscal year-end, companies

provide press releases with

summary financial informa-

tion and narrative explanation

of key points. The early press

release is a high-risk activity,

in that independent auditors

often have not finished their

audit work and pressures of

early reporting make errors

much more likely. Occasion-

ally, companies must restate

their reported financial results

to match the reports finally

filed with the Securities and

Exchange Commission (SEC).

Those restatements cannot

only embarrass company man-

agement, but also can lead to

adverse reports by manage-

ment and by the independent

auditors in Form 10-K about

the company’s internal con-

trols and internal controls over

financial reporting. Disclosing

a material weakness in internal

controls over financial report-

ing tells the investor that there

is a higher than normal risk

that financial reports might

not be reliable reflections of

operating results and financial

condition. A resulting loss of

investor confidence might lead

to a reduction in stock price

and enterprise valuation.

As the calendar year

ends, the staff of the SEC has

planned its reviews of public

company financial reporting.

Its focus from the top down is,

first, accuracy and timeliness

of annual and quarterly dis-

closures; second, within those

disclosures, the accuracy and

timeliness of financial report-

ing; and third, supporting those

disclosures, the adequacy of

internal controls over financial

reporting. The staff’s selection

criteria for review in the Divi-

sion of Corporation Finance