SEC Matters

AuthorDonald A. Walker
Published date01 January 2017
Date01 January 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22243
SEC Matters
Donald A. Walker Jr.
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

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