Accounting

SEC Reporting 101: What Accounting Teams Need to Know

Let’s just start with this: If you want to increase your chances of getting and keeping a great accounting job, learn SEC Reporting.

I distinctly remember over ten years ago going to a job interview for my dream accounting job at a publicly traded company. I nailed the interviews. I even knew the accounting and finance team at the organization as it was a former audit client.

But… I didn’t get a call back. I figured that the job search process had a fair amount of salesmanship involved, so I returned unannounced and asked the front desk receptionist if I could speak with the hiring manager. After all, I never received a “No.” The hiring manager came out and met with me in the lobby. I proceeded to tell him why I was perfect for the job. I will never forget how that hiring manager showed me a great amount of respect and told me, “You don’t have any SEC Reporting experience. We need someone with SEC Reporting experience.”

I left there with my dignity and a mission: Learn SEC Reporting.

To help you on your journey, here are the basics:

1. Number 1 – Q’s and K’s

The two main filings for a publicly traded company are the form 10-Q and form 10-K. The 10-Q is filed about a month after the end of your first three quarters.

• Q1-19 – Quarter ended March 31, 2019 – filed around April 30, 2019
• Q2-19 – Quarter ended June 30, 2019 – filed around July 31, 2019
• Q3-19 – Quarter ended September 30, 2019 – filed around October 31, 2019

The 10-K is filed about two months after year end.

A sample Form 10-K for the year ended December 31, 2017 (view on the SEC website)

A sample Form 10-Q for the quarter ended March 31, 2018 (view on the SEC website)

2. Sections of the Q’s and K’s

The Business section contains a discussion of the company’s business. This section will be several pages long in a 10-K, and will be condensed to a page or two in the 10-Q.

The F-pages are the normal financial statements that you would typically see for a private company.  They include the Income Statement, Balance Sheet, Statement of Cash Flows, and Statement of Shareholder’s Equity (if it’s the year end 10-K).

The Risk Factors include a list of everything that could possibly go wrong with the company that would cause investors to lose money.  Risk factors must be included in the 10-K, but they are not required for the 10-Q if there haven’t been any material changes to the risk factors.

Management Discussion and Analysis (MD&A) is a section that provides a narrative about the material changes in the income statement and the statement of cash flows.

This is a very broad overview. For a more in-depth description of the sections of the 10-Q and 10-K, read this article.

If you really want to learn SEC Reporting, go pull up a company’s filing and identify these sections in their filing.

Let’s learn how to search for SEC filings.

Go to https://www.sec.gov/search/search.htm.

Let’s search for Apple:

It’s this one.  Click on the yellow highlighted number.

Let’s pull up their recent 10-K filing by scrolling down and clicking Documents next to the first 10-K that we see.

Click on the top item in the list.

Scroll down to the table of contents and click on each of the circled items below.  Skim through each of these circled sections to get a better feel for what goes in them.

You may start reading through this stuff and think, “How in the world is an accountant going to know how to update all of this stuff?” Don’t worry; you’ll have help. Check out this one hour free online webinar CPE for CPAs that goes through which parties are involved in the SEC Reporting process. It also covers some common grammar tips for your SEC filings.

3. Whose books are they?

For many private companies, the supposedly “independent” auditors are doing much of the accounting work. It’s an unspoken thing. The auditors come out to the client, and the books are in bad shape. So, the only way to get the audit done  is to help the client figure out their key estimates.

When you are dealing with publicly traded companies, this is NOT how it works. The relationship among the client staff and auditors is much more “by the book.” There is a clear line between the client preparing the financials and the auditors reviewing or auditing the financials. Any respectable accounting firm that wants to keep its license to perform audits under the Public Company Accounting and Oversight Board (PCAOB) will refuse to make key accounting estimates for their public company clients.

This is the big reason that publicly traded companies need to have experienced CPAs on staff to perform the financial reporting for the company.

To learn more about working with external auditors, click here.

4. Initial Public Offering (IPO)

Companies that have not gone through an IPO (Initial Public Offering) are considered private companies.  They are subject to certain restrictions as to who can buy and sell shares of their stock. When a company completes an IPO, the company can sell its shares of stock to a much broader group of investors. This makes it much easier…

• for existing shareholders to sell their shares and “cash out”; and
• for the company to raise additional money by selling shares or debt to the public.

There is an extensive amount of work involved in the IPO process, and it is very expensive for the company.

And That’s It!

You’ve learned about the main SEC filings and the sections within them. We also discussed the enhanced need for the external auditors to maintain their independence at publicly traded companies. And finally, we talked briefly about the IPO process and the benefits of going public. Hopefully this has demystified the SEC Reporting topic for you and has put you on track to learning all that you can about SEC Reporting.

About the author

Patrick Truesdell is a CPA working at a publicly traded biotech company as the Director of SEC Reporting and Budgeting.  Patrick is also the founder of the Public Company Community, which provides Free Online Webinars for CPE for CPAs and tons of useful articles about budgeting and SEC Reporting.  Follow Patrick on LinkedIn. Follow Public Company Community on Facebook, Twitter, Instagram, LinkedIn, YouTube, and Google+.