This is the first in a series of posts that identify certain issues faced by in-house counsel of public companies in a range of corporate matters.  To kick us off, we will examine three items to consider when preparing your Quarterly Reports on Form 10-Q to avoid common errors.

  1. Rule Changes.  Often times, companies take their most recent Form 10-Q or their Form 10-Q from the same fiscal quarter in the prior year and simply update the relevant information.  However, the rules and regulations governing filings with the Securities and Exchange Commission are constantly changing, and it is easy for a new rule, rule change or other revision to slip by unnoticed, particularly for in-house counsel who are often working without the resources available to lawyers at private law firms.  As a simple example, the infamous Section 4(2) of the Securities Act of 1933 actually changed a couple of years ago to Section 4(a)(2) as a result of the JOBS Act, but this change went unnoticed by many companies whose Form 10-Qs still reference the old Section.  In the same vein, changes to the Form 10-Q itself often occur unnoticed.  Unfortunately, there are no free reliable resources that compile such changes in a user friendly manner, but the SEC website has recently launched its Rulemaking Index where you can learn about new and proposed rules. 
  2. Consistency.  A Form 10-Q is a cookie jar in which there are many hands.  The draft document goes from Accounting to the Business team to Tax to Legal, and all along the way, numbers and text get adjusted, altered and tangled.  It is important to remember that if one number or disclosure is changed in the financial footnotes of the Form 10-Q, that the same number or disclosure in the body of the document conforms.  Often times, dollar values will be reported in thousands in one section and not in another, which due to rounding, can cause inconsistencies between disclosures in various sections of the Form 10-Q.  To avoid this, it may be a good idea to have one person, often times the Controller, be in charge of the document and input comments he or she receives from the various reviewers instead of having many people input their own comments.
  3. Exhibits.  Most lawyers feel a sense of relief when they come to the exhibit list in their review of the Form 10-Q because it means they are nearing the end of the document.  However, it is important to ensure that all exhibits from the quarter that need to be attached are not only listed in the exhibit list, but are attached in full with all applicable schedules, exhibits and conformed signatures, unless the schedules or exhibits are intentionally excluded in accordance with the rules.  It is also important to remember to accurately reference the location of prior exhibits that are incorporated by reference into the Form 10-Q.  One way of ensuring you don’t forget to include an exhibit on the exhibit list is to keep a running list on your desk throughout the quarter that you can update as documents are signed and agreements are entered into.  As you prepare this running list, also consider well in advance whether you will want to seek confidential treatment for any part of an exhibit.

There are of course many moving parts in preparing a Form 10-Q, and these are just a few of the areas where we see common errors.