April 15, 2025
Corp Fin Issues New CDIs on Clawbacks
Here’s an update about Dodd-Frank clawbacks that Meredith shared on TheCorporateCounsel.net: On Friday, Corp Fin posted a handful of new CDIs, including six new Exchange Act Forms CDIs that address clawbacks-related checkboxes on the Form 10-K cover page and the timing of required Item 402(w)(2) disclosure and one new Exchange Act Rules CDI that addresses co-registrants in a de-SPAC transaction. Below, I’ve paraphrased the Form 10-K CDIs, and I addressed the de-SPAC CDI in a DealLawyers.com blog.
104.20: When an issuer reports a change to its previously issued financial statements in an annual report, it should determine whether “the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements” for purposes of the check box by looking to applicable accounting guidance on whether the change represents the correction of an error. The CDI notes that this includes “Big R” restatements and “little r” restatements but excludes “out-of-period adjustments” since the previously issued financial statements are not revised.
104.21: Companies must mark the check box on the cover of an amended annual report to indicate that the restatement “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” pursuant to Exchange Act Rule 10D-1(b) even when (1) no incentive-based compensation was received by any executive officers at all during the relevant time frame or (2) incentive-based compensation was received but that incentive-based compensation was not based on a financial reporting measure impacted by the restatement (and explain).
104.22: After filing an amended 20X3 10-K, an issuer includes the same restated financial statements in its subsequent 20X4 annual report. Assuming there are no additional restatements, the staff will not object to the check boxes remaining unmarked on the cover page of the 20X4 annual report. But the proxy or information statement filed during 20X5 that includes 20X4 executive compensation information pursuant to Item 402 must also include the disclosure of Item 402(w)(2) of Regulation S-K.
104.23: If an issuer discovers an error in its previously issued 20X3 financial statements in 20X5 (prior to filing the 20X4 annual report), applies its recovery policy, determines that no recovery is required, checks both boxes on its 20X4 annual report and provides Item 402(w)(2) disclosure in its proxy or information statement incorporated by reference, the staff will not object if the 20X5 annual report does not include or incorporate by reference Item 402(w)(2) disclosure, notwithstanding that the restatement occurred “during…the [issuer’s] last completed fiscal year” as long as there are no additional facts that would affect the conclusion of the prior Exchange Act Rule 10D-1(b) recovery analysis that no recovery is required.
104.24: An issuer initially reports a restatement of an annual period in a form that does not include a cover page check box requirement – for example, a Form 8-K or a registration statement. If that annual period is presented in the issuer’s financial statements in its next annual report, the issuer is required to mark that check box on the cover page of that annual report.
104.25: If an issuer determines in the fourth quarter that it is required to prepare restatements of its first, second and third quarterly periods of that year, the issuer is not required to mark any of the check boxes on the cover page of its annual report even if the issuer includes disclosures about the interim restatements in a footnote to the annual period financial statements. However, it must provide disclosure pursuant to Item 402(w) of Regulation S-K in its 10-K or proxy or information statement since, for purposes of that disclosure, an accounting restatement is not limited to one that impacts annual periods.
– Liz Dunshee