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Advanced Planning Reduces Possibility of Late Filing with the SEC

posted March 14, 2016


By: Thomas M. “Mickey” O’Neal, CPA

Timely filing of SEC Forms is critical for those entities required to file reports with the Securities and Exchange Commission. This blog provides a road map for creation of a closing schedule necessary to comply with SEC reporting requirements in the US. Generally, annual audited financial statements and the Form 10K in which it is included are due 90 days after the end of the fiscal year and quarterly interim financial statements and the Form 10Q in which they are included are due within 45 days of the end of the fiscal quarter for smaller reporting entities. For the Form 10K an extension period is allowed of 10 calendar days and for the Form 10Q an extension period is allowed of five calendar days.

Auditors require sufficient time to perform the audit and review procedures required for them to issue an opinion on the audited financial statements and to provide approval to file after their review of the quarterly financial statements. The amount of time needed depends on several factors but usually for quarterly reviews, they prefer to have all required information to our office by the end of the month following the end of the calendar quarter, at the latest, earlier would be beneficial. In order for them to have time to properly perform required audit procedures after then end of the fiscal year, assuming they audit significant transactions during the quarterly reviews, they require all initial information requests to be completed by six weeks following the close of the fiscal year end, and of course earlier would be beneficial.

The process of assuring all period transactions are posted, journal entries are recorded, financial statements prepared and SEC filings drafted and prepared for submission to the auditor is typically referred to as the accounting close. The time required to complete the functions referred to in the preceding sentence need to be estimated, the time frame delegated to those responsible for the particular function and upon implementation of the process each need to be monitor to assure future compliance to avoid late filings.

Transaction posting

The company needs to assure all transaction categories are reviewed, the process summarized and address with a similar approach any areas on the process which impact the timing of the close. We recommend that the Company allow for five business days after the end of the month to assure all transactions are posted.

Posting of monthly journal entries

The company needs a system to record recurring monthly journal entries which include payroll entries, depreciation and receivable and accrued expense accruals. The entries need to be identified, a method of monthly calculation developed and assure these entries are posted timely. The Company needs to assure systems are in place such that non-recurring transactions are made known to the general ledger accountant during the period so that he has sufficient time to assure that he can quantify the transaction and determine the proper accounting is determined with sufficient time to assure the entries are accounted for. We recommend that the Company provide another five business days after all transactions are recorded to assure all recurring and non-recurring journal entries are recorded

Financial Statement Preparation

Preparation of monthly financial statements can be done fairly quickly once all transactions and journal entries are recorded. The company should assure that templates are set up for each quarterly period to facilitate the preparation process.

  1. Balance sheets
    1. At year end both the current and prior fiscal year end balance sheets need to be presented
    2. At the end of a fiscal quarter the balance sheet for the current fiscal quarter being reported on needs to be presented along with the balance sheet form the end of the prior fiscal year
  2. Statements of operations – columns need to be presented for:
    1. Year end – year to date information for current and prior fiscal year ends
    2. Quarter end:
  1. Current quarter
  2. Same quarter from prior fiscal year end
  • Current year to date data (6 month in second quarter, 9 month in third quarter)
  1. Year to date data for same period of prior fiscal year end (6 month in second quarter, 9 month in third quarter)
  1. Statement of cash flow
    1. Current year to date data (6 month in second quarter, 9 month in third quarter)
    2. Year to date data for same period of prior fiscal year end (6 month in second quarter, 9 month in third quarter)
  2. Statement of changes in shareholders’ equity (only required for significant changes) for the current year to date

Templates for these statements are easy to create and can be done in advance to speed up the filing when the period end is at hand. Difficulties of course can be encountered if the entity requires a consolidation process, if any.

Secondly, the footnote disclosures need to be included in financial statements presented to us for review and or audit. A complete set of disclosures is required to be included in the annual audited financial statements to be included in the Form 10K; however, disclosures in the quarterly financial statements can be abbreviated and the financial statements themselves can be condensed. These footnote disclosures are routine and there are two types, accounting policy notes and detailed footnotes. There is no reason why the accounting policy notes cannot be created in advance. Likewise the format of the tables to be used for the detail footnotes and most of the narrative could be created before the filing crunch comes.

We recommend that the financial statement preparation process again be allowed five business days for completion

Preparation of SEC Filings

The filings themselves can be somewhat extensive. The auditors only concern themselves with the MD&A included therein, any narrative in the filings that refers to the financial statements and the financial statements themselves. Most of the information to be included in these filings can be created in advance. We suggest that filing companies adopt a standard format for the MD&A analysis of financial results. Putting some of this in tabular form can help with the completion process and make it easy to understand for the reader.

Once again we recommend the company allow five business days to complete this step.

In reality the first two steps can usually be done sooner than the five day allotment and the last two items usually take longer. Once the financials and SEC filings are prepared top management must also have time to review and revise before they are sent to the auditors. These processes must be fluid but the easiest way assure an adequate close process is to identify the required steps, who is responsible for each and budget the time it takes for each step in the process.

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