Easing the Compliance Burden of the New Form 8-K Requirements
Public companies are now dealing with the issues posed by the SEC's groundbreaking new Form 8-K requirements that went into effect August 23, 2004. Designed to further real-time disclosure of material changes to companies' finances and operations, the revised requirements include new and expanded disclosure items. The new rules also shorten the previous 15-day filing deadline for most items to just four days.
As burdensome as some of the new requirements may appear, others are straightforward Â— and all can be successfully managed. Corporate counsel may want to suggest the following guidelines to compliance officers and other responsible staff to improve the timeliness and accuracy of corporate SEC reporting:
- Integrate the new requirements with existing governance and disclosure systems. Large companies may choose to designate a compliance officer with responsibility solely for 8-K filings. The burden of the new requirements may fall heaviest, however, on small companies, where compliance staffing or systems may be thin or lacking. Now is the time to consider expanding corporate investment in the compliance area.
- Educate executive management. Inform them of the new rules. Meet with them to establish internal guidelines for defining elements of a reportable event (what constitutes a "material" contract or a "material" amendment to a contract, which financial obligations and off-balance-sheet arrangements may be deemed "material," etc.). Distribute a list of disclosure-triggering events to managers throughout the organization, along with information on how to notify compliance staff.
- Identify key individuals most likely to know a triggering event is imminent. Include the finance department as well as board members and other individuals authorized to make disclosure-triggering decisions. Encourage "point people" to lead the way in notifying compliance staff. Choosing more than one such person per function will increase the likelihood of timely notification.
- Be aware of changes to filing requirements, new options and new deadlines. Some items may require the filing not only of initial Form 8-Ks, but of updated ones as well. Your company may, for example, choose to file an initial 8-K with just a copy of a bylaw amendment, then file the full copy of the bylaws in its next periodic report. But certain exhibits related to an 8-K filing may need to be filed within two business days of receipt. Also, if a transaction falls under more than one 8-K item, your company will need to file under each item.
- Compliance and accuracy are vital. Add procedures to Form 10-Q and Form 10-K preparation checklists to ensure that no Form 8-K items are missing. Remember that the new "safe harbor" from 10b-5 liability for failure to file some Form 8-K items continues only until the due date of the next Form 10-Q and Form 10-K Â— and doesn't protect a company from SEC enforcement, or from liability for filing incomplete or inaccurate reports.
Under the new Form 8-K rules, corporate disclosure has gone from a periodic responsibility to a full-time job. Creating a system with a clear process and built-in safeguards to ensure accurate and timely filings requires considerable work, but will help avoid problems in the long run.