Form 10-Q Reminders

We wanted to provide two reminders on Form 10-Qs being filed for the quarter ended March 31, 2022.

MD&A Amendments Apply.  This is the first Form 10-Q report that companies with a December 31 fiscal year end will file that is subject to mandatory compliance with the SEC’s 2020 amendments to Item 303 (Management’s Discussion and Analysis) of Regulation S-K.  Some companies had voluntarily adopted some but not all of the 2020 financial disclosure amendments, which were described in a Goodwin client alert, SEC Amends MD&A and Other Financial Disclosure Rules.  It is important to confirm that the Form 10-Q complies with these amendments.

Two of the newly-required MD&A amendments are of particular significance: (1) the alternative interim period comparison and related disclosure requirements and (2) the new critical accounting estimates disclosure requirements.  Very briefly, the critical points include the following.

  • Interim period comparisons may be presented for sequential preceding periods rather than prior year periods, which was the only option prior to the 2020 financial disclosure amendments.  If the company chooses to present a comparison of sequentially preceding periods, the amendments require additional disclosure, as set forth in Item 303(c) of Regulation S-K.
  • Critical accounting estimates are now formally required by Item 303(b)(3) of Regulation S-K.  An instruction explicitly states that this disclosure should not merely duplicate the accounting policies presented in the financial statement notes, which has been the practice of many companies under the guidance that applied prior to adoption of the amendments.

Impact of Inflation and Rising Interest Rates.  Inflation rates and interest rates have both increased over the last several weeks, as has concern about their impact on businesses and consumers.  Like many other financial, economic and political issues, these may affect disclosure in MD&A, Risk Factors, the forward-looking statement disclaimer and the financial statement notes, among others.  If the impact of rising inflation rates and interest rates could have had (or are reasonably likely to have) a material impact on the company or its business, companies need to determine whether disclosure in the Form 10-Q is necessary or appropriate.