The staff of the Division of Corporation Finance (Corp Fin) of the Securities and Exchange Commission (SEC) has issued new Compliance and Disclosure Interpretations (C&DIs) relating to the clawback disclosures required in an issuer’s annual report on Form 10-K and proxy statement. In addition to the April 11, 2025 issuance, Corp Fin released a C&DI regarding the cessation of reporting requirements under the Securities Exchange Act of 1934, as amended (Exchange Act), for co-registrant target companies following the completion of a de-SPAC transaction.
Form 10-K clawback check box disclosures
The new C&DIs, found in Exchange Act Forms Questions 104.20 through 104.25, relate to issuers’ clawback disclosure requirements following an accounting restatement, and address compliance with the check box requirements introduced on the cover page of the Form 10-K as part of the SEC’s implementation of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
As a reminder, the two relevant check boxes added to Form 10-K in early 2023 include:
- Check box #1: If a registrant’s securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
- Check box #2: Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Check box C&DIs
Question 104.20
An issuer should consult the guidance under the generally acceptable accounting principles to which its financial statements are subject in order to determine whether any change to its previously issued financial statements in an annual report requires it to mark the check box on the cover page of its annual report.
Any issuer that makes a change to correct an error to previously issued financial statements, regardless as to whether the error led to a restatement of the previously issued financial statements, must mark Check box #1. An accounting restatement includes a restatement to fix an error in previously issued financial statements that is material to those financial statements (Big R restatement) as well as a restatement to correct an error that is immaterial to previously issued financial statements but would result in a material misstatement if the error was corrected or left uncorrected in the current period (little r restatement). However, the guidance provides that Check box #1 does not need to be checked if an immaterial prior period error is recorded in the current year (an out-of-period adjustment).
Question 104.21
If an issuer reports a Big R restatement in its 20X3 financial statements and files an amended 20X3 annual report to report the correction of the error, it must also mark Check box #2 even if:
- No incentive-based compensation was received by any executive officer of the issuer during the relevant recovery period, or
- The issuer has determined that no recovery of incentive compensation is necessary (ie, such compensation was not based on a metric impacted by the restatement).
In either case, the issuer must also briefly explain why the application of its compensation recovery policy resulted in no recovery.
Question 104.22
Assuming the same fact pattern as Question 104.21, when the issuer files its 20X4 annual report, which includes the restated 20X3 financial statements, Corp Fin would not object to the issuer leaving both check boxes unmarked on the cover page of its 20X4 annual report as long as there are no additional restatements reported in such report.
However, because a restatement took place during 20X4, the issuer’s proxy statement or information statement filed in 20X5 must include disclosure under Item 402(w)(2) of Regulation S-K, explaining why the issuer reached the conclusion that no recovery resulted from the restatement, even if such disclosure was already made in the amended 20X3 annual report. This is because Item 402(w)(2) applies to restatements “during or after [the issuer’s] last completed fiscal year.”
Question 104.23
The staff provides a scenario in which an issuer discovers an error that requires a little r restatement to its 20X3 financial statements in 20X5 (prior to filing the 20X4 annual report), applies its recovery policy, and determines no clawback is necessary. Furthermore, the issuer marks both check boxes in the 20X4 annual report and includes the required Item 402(w)(2) disclosure in a proxy statement that is incorporated by reference in its 20X4 annual report. In this situation, the staff would not object to the issuer omitting the Item 402(w)(2) disclosure from its 20X5 annual report as long as there are no new facts that would affect the conclusion of the previous recovery analysis.
Question 104.24
This C&DI provides that if an issuer first reports a restatement of an annual financial statement in an SEC form that does not include a cover page check box requirement (ie, Form 8-K or a registration statement), then the issuer must mark Check box #1 in the next annual report that includes such restated financial statements.
Question 104.25
If an issuer determines in the fourth quarter of its 20X5 fiscal year that it must restate its first quarter, second quarter, and third quarter 20X5 financial statements, such issuer is not required to check the boxes on the cover page of its 20X5 annual report because the restatements do not impact the annual financial statements included in such an annual report. This is true even if the issuer includes disclosure about the interim period restatements in a footnote to the annual financial statements pursuant to Item 302(a) of Regulation S-K.
However, the issuer must include in its 20X5 annual report (or incorporate by reference from its proxy statement) the disclosure required under Item 402(w) of Regulation S-K because the issuer determined during 20X5 that it needed to prepare an accounting restatement, and the requirements of such item apply to annual or interim period restatements.
Other Corp Fin guidance: Target company reporting obligations following de-SPAC
Newly issued C&DI 253.03 provides that in the case of one or more de-SPAC target companies that have incurred reporting obligations under Section 15(d) of the Exchange Act by virtue of being included as a co-registrant in a registration statement filed pursuant to the de-SPAC transaction, the SEC will not object to the filing of Form 15 by the target company to suspend its reporting obligations in reliance on Rule 12h-3 under the Exchange Act, as long as such target company:
- Is wholly owned by the combined company, and
- Remained current in its Section 15(d) reporting obligations through the date of filing Form 15.
The summaries above of the recently issued C&DIs are not meant to be complete and are qualified in their entirety by reference to the text of the C&DIs. Issuers are encouraged to review the full text of the C&DIs when determining their applicability.
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