We’re in Year 2 for the clawback checkboxes on the cover of the Form 10-K and we’re fielding a lot of questions from clients about them right now. As Cydney Posner noted a little while back in her Cooley blog, there is still a bit of confusion about these two newish checkboxes.
Here’s a set of a dozen quick FAQs to help you understand these clawback checkboxes:
- If the first checkbox is checked, do we need to check the second box too?
Not always but mostly. If a company checks the first checkbox – to reflect the correction of an error to previously issued financials – then that company will check the second checkbox if a compensation recovery or clawback analysis was required as a result of the error.
The second check box must be checked for all non-voluntary restatements – both “Big R” or “little r” – since an analysis always must be performed in those situations. This is the case even if very little analysis needs to be done to confirm no recovery is needed. The Corp Fin Staff has indicated that the circumstances in which the first box should be checked but not the second are limited.
But a Nonlinear Analytics study about the first year under the checkbox regime found that less than 15% of the 205 companies that checked the first box wound up checking the second box too. The study’s results likely are skewed because accounting errors discovered in early 2024 may not have triggered a clawback since 2023 bonuses were not yet paid and the clawback listing rules were not effective until late 2023.
2. Is it possible that we might be checking the second checkbox without checking the first?
No, checking the first checkbox is a prerequisite to checking the second checkbox.
3. What types of restatements does the first checkbox apply to?
It runs the gamut, applying to both “big R” and “little r” restatements, as well as voluntary restatements.
4. What is a “voluntary restatement”?
A Corp Fin Staffer has provided this example of a “voluntary restatement”: If the error is immaterial to the prior year, and correction in the current year would also be immaterial, the company is permitted to correct the financials through an out-of-period adjustment to the current year, and the company isn’t required to restate the prior year. If the company chooses to correct the error via a restatement of the prior year, it will need to check the box. If the company instead uses an out-of-period adjustment to the current year, it does not need to check the box, because it hasn’t revised previously issued financial statements.
5. For the first checkbox, how do we know whether there was an error to previously issued financials?
In considering whether a change to previously issued financial statements is an error, companies should look at the definition of “error” in GAAP. It’s a good idea to check in with your auditor here.
The definition includes any error in recognition, measurement, presentation or disclosure in financial statements resulting from a mathematical mistake, mistakes from the application of GAAP or oversight or misuse of facts existing at the time the financials were prepared. It doesn’t include the adoption of new accounting standards that require retrospective application, a disaggregation of line items or a change in accounting principles.
6. Do we need to disclose the extent to which we analyzed the error that required that we mark the second checkbox?
Yes, even where no amount is recovered, you still need to disclose why no amount was recoverable – even if that disclosure is not lengthy as you need to provide an explanation of why the company reached its conclusion.
7. Do the checkboxes cover errors for the current year?
No, the checkboxes apply only to corrections of errors for prior years – they don’t apply to errors corrected in the current year.
8. If the 2024 10-K was amended in 2025 for a restatement of errors related to 2024, and the company properly checked boxes in the 2024 Form 10-K/A that it filed, does the company need to check in the 2025 Form 10-K (since it still includes FY 2024 financials)?
According to the Corp Fin Staff, assuming no other restatements occurred, the company wouldn’t need to check the box on the 2025 cover in this situation.
9. Should we check the checkboxes if our company is required to restate interim results?
The Corp Fin Staff has indicated that if financials included in the 10-K aren’t required to disclose the correction of an error because the error only existed in interim periods, the company doesn’t need to check the checkboxes. But note that proxy disclosure under Item 402(w) may still be required in this situation.
10. Should we care about XBRL for the checkboxes?
Yes, it’s important to ensure you have the proper XBRL block-tags for your clawback disclosures as the Corp Fin Staff is using this tagging to verify compliance. Not to mention that the tags are also important to investors.
11. Do we need to include the checkboxes if they don’t apply to our company?
Yes, the checkboxes are required to be displayed on the cover of the Form 10-K even if they aren’t checked.
12. Should I feel silly worrying about checkboxes?
A lot of people are confused. But you do want to get this right, which can be hard in the face of inconsistent practices.
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