Corporate financial statements and reports (Part II)

March 16, 2014

In the first article of this series, we gave an overview of standard financial statements and additional disclosures and notes to the statements that a corporation produces on a periodic basis. In this article, we’ll touch on official reports that must be filed with the Securities and Exchange Commission by public companies.

1. Role of the Securities and Exchange Commission

For the first part of this article series, refer to Corporate financial statements and reports (Part I).

The Securities and Exchange Commission, or SEC, was created by Congress back in 1934 as part of its response to the stock market crash of 1929. Its jobs are to protect investors from shady corporate dealings and to maintain a fair and orderly market for the sale of securities. As part of its mandate, the SEC requires a company that issues certain securities to file various reports on a periodic basis. Most of these reports are available in a public database for any potential investor to read.

2. Annual reports

The most comprehensive report filed with the SEC is the 10-K annual report. The 10-K includes financial statements and disclosure notes which must be audited, along with management’s discussion and analysis of corporate operations. The goal of a 10K report is to provide current and potential investors with all relevant information needed to make sound investment decisions. Because the statements are audited, investors and the SEC can be reasonably certain that the risk of error or fraud by the corporation is low.

Many large corporations provide this report directly on the company website for public viewing.

3. Quarterly reports

In addition to the yearly 10-K report, a publicly traded corporation must submit three 10-Q quarterly reports. These include interim financial statements which do not have to be audited (but have to be reviewed), and which often compare the results of the current quarter to those of the prior one and to the same quarter of the previous year. Generally, 10-Q reports are not as detailed as the more comprehensive 10-K reports.

4. Informational reports

The SEC requires a long list of more specific reports, most of which are too detailed to be relevant for the purposes of this article. We will, however, point out two types for a closer look.

Form 8-K must be submitted whenever a material event occurs between quarterly reports. The SEC provides a list of material event categories that must be disclosed. These events include the resignation of a director, a new material agreement with a third party, and initiation of bankruptcy proceedings. These disclosures are meant to provide the investing public with relevant information as quickly as possible - 8-K reports usually need to be filed within four days of the triggering event.

S statements include more than a dozen different filings used to notify the SEC that the company will be offering securities for sale in the near future. These registration statements disclose basic information about the offering and sometimes include audited financial statements.

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