Public companies must submit regular filings to the United States Securities and Exchange Commission that include detailed information about the company’s financial dealings, condition, leadership, governance and plans for the future. A failure to provide complete information or the presence of inaccuracies can lead to consequences like SEC comment letters or required restatements.
While submitting accurate reports to the SEC is important for compliance, it is also a critical tool for investor relations. Investors rely on SEC reporting to help them assess the condition of a company and their investments in the organization as a result. Published filings are available to anyone in the public who searches for them, which means that errors and omissions could harm the reputation of companies that make mistakes. This guide explains how correct and complete SEC filings are a vital part of demonstrating company integrity, transparency and effective governance.
The Complexity of Modern SEC Filings
Current requirements for SEC reporting include a combination of financial, legal and narrative reporting. To meet these obligations, companies may need to coordinate across multiple teams to gather, process, and assemble necessary details. With real-time investor access and innovations in AI-based data analysis, investors often expect reporting to continually improve speed, accuracy, and transparency. Common SEC filing challenges include:
Staying abreast of the latest updates to SEC regulations
Submission of periodic reports by the deadline
Integrating narrative disclosures, such as ESG or cybersecurity
Maintaining version control and approvals when multiple departments provide input
Various types of SEC filings have tight filing deadlines, calling for a submission in as little as 60 to 90 days after the end of the fiscal year. Since filings require specific iXBRL tagging and formatting for the EDGAR filing system, many companies are relying on AI to provide additional assistance in analyzing data and preparing documents to meet these formatting guidelines.
Common Mistakes in SEC Filings — and How to Avoid Them
SEC reporting requirements do not provide much flexibility for companies that submit incorrect or inconsistent filings. With the right processes, organizations can identify weaknesses and shore up their document preparation and review to avoid these common errors:
Inconsistent or Outdated Information: Financial statements and disclosures should move seamlessly from one report to the next. Outdated or inconsistent disclosures make it harder for investors to follow the trail. To address this problem, companies can use historical filing analysis and automation to create consistent, accurate disclosures.
Formatting and iXBRL Tagging Errors: The EDGAR Next platform requires proper formatting for a successful submission. Automation with tools like ActiveDisclosure can streamline data inputs for seamless reporting that avoids rejected submissions.
Missing or Misclassified Data: The SEC expects to review risk factors, MD&A updates and governance as part of overall financial reporting. Companies should use peer benchmarking and follow comprehensive review checklists to ensure that they are not leaving gaps in disclosures.
Version Control Failures: When multiple departments are generating information for the reporting process, version control is key. Businesses should use centralized, cloud-based platforms with automated audit trails to ensure that the information in the final filing is accurate and current.
Human Errors: Staff members working under deadline are more likely to make mistakes when performing manual data entry and corrections. Companies can minimize this risk by automating routine tasks so that reports are prepared quickly and more personnel can work on a detailed review before submission.
Paying attention to regulations and building processes that prioritize compliance can make avoiding problems much easier.
The Real-World Consequences of Filing Errors
When firms fail to provide accurate, complete, consistent data to the SEC, they may face consequences. These outcomes could include:
Regulatory Exposure: Companies might have to address SEC comment letters, additional investigations of company information or required restatements.
Financial Impact: Additional legal reviews and fines can have significant financial penalties.
Reputational Risk: If investors see inconsistent or inaccurate data in filings, they may lose confidence in the company’s governance.
Operational Setbacks: When the SEC requests greater detail or a resubmission, businesses must divert staff from regular operations to address these compliance problems.
The good news is that most of this is easy to avoid. If companies are proactive about ensuring accuracy and consistency in all their financial dealings, they can maintain compliance while they build shareholder trust and long-term success.
Best Practices for Accurate and Efficient SEC Filings
To ensure that the filing meets required standards, follow these best practices:
Centralize Workflows: Use a disclosure management platform, such as SEC filing software, to manage versions and ensure everyone has the most recent and accurate information.
Automate Repetitive Tasks: Use workflow automation to reduce human error and streamline work for approvals, formatting and compliance verification.
Leverage Historical Data: Review previous filings to ensure that current disclosures maintain informational and narrative consistency.
Utilize AI-Powered Insights: Rely on tools like ActiveDisclosure to identify anomalies and complete peer benchmarking tasks in an instant.
Promote Cross-Functional Collaboration: Involve relevant teams, like finance, legal and investor relations, early in the process to ensure effective collaboration.
Perform Pre-Filing Reviews: Provide plenty of time before SEC filing deadlines to conduct a review of each section before EDGAR submission, to ensure everything is complete and accurate.
A regular review and update to processes can minimize risk of failure.
Building a Culture of Accuracy and Accountability
Compliance should be a priority, but companies may need to work to create a culture that promotes accuracy and accountability. When compliance is treated as a last-minute, nice-to-have task, employees are less likely to prioritize it as part of their regular responsibilities. This approach can lead to long-term inconsistencies and inaccuracies that are harder to resolve the worse they get.
Instead, organizations should adopt a mindset that compliance is the first responsibility they have. Quality and accuracy sit as the primary emphasis for all contributors. This approach forces teams to adapt their processes for increased rigor in documentation, as well as effective training in SEC requirements. Empowering compliance personnel to manage regular tasks, with support from leadership, can help the company to increase transparency and accountability, without making employees feel like they are to blame for every slip.
Build Trust and Confidence with Accurate SEC Filings
Ultimately, compliance should be looked at as a process, not just an end result. Companies that treat SEC filing accuracy and compliance as a strategic priority can reap the benefits of increased credibility and investor trust. Errors in reporting can be expensive to fix and create long-term impacts, like a loss of investor confidence. Thankfully, automation, technology, and increased oversight can all but eliminate the risk of inaccuracies.
If you want to streamline your filing process with tools that are designed to maintain accuracy, security and speed, DFIN can provide the right solution. Contact us to request a demo.
