On April 11, 2025, the US Securities Commission’s Division of Corporation Finance issued six new Compliance and Disclosure Interpretations (CDIs) that provide guidance on the disclosures required when a US listed issuer has an accounting restatement that may trigger a clawback of “erroneously-awarded compensation” under Exchange Act Rule 10D-1 and the corresponding listing standards. See Exchange Act Forms CDIs 104.20 – 104.25, as linked below.
When to Mark Check Boxes on Annual Reports
The new CDIs clarify the circumstances in which a company is required to mark the check boxes on the cover of its annual report (on Form 10-K, 20-F or 40-F, as applicable) to indicate that (i) the financial statements included in the report reflect a correction of an error to previously-issued financial statements and (ii) whether such error correction is a restatement that required a recovery analysis of incentive-based compensation received by executive officers during the relevant recovery period.
Of particular note, CDI 104.20 confirms that when, under GAAP, the financial statements included in a report have been revised to reflect the correction of an error to previously issued financial statements, whether a “Big R” or little r” restatement and regardless of whether those restatements are required, the issuer must mark the first check box. In contrast, the first check box would not be marked in the case of a correction of an immaterial prior period error that is recorded in the current year (i.e., an “out-of-period adjustment”) because there the previously issued financial statements are not revised.
Further, CDI 104.21 clarifies that the second check box must be marked to indicate that a restatement required a recovery analysis even if (i) no incentive-based compensation was received by any executive officers during the relevant time frame, or (ii) incentive-based compensation received by executive officers during the relevant time frame was not based on a financial reporting measure impacted by the restatement.
Timing Considerations for Check Box and 402(w) Disclosures
CDI 104.22 confirms that when an issuer has restated prior year financial statements, amended the applicable annual report and marked the first check box on the amended annual report to reflect a restatement of the financial statements in such prior year’s report, it does not need to again mark the check box on the annual report for the current year, even if the current year report includes the amended financial statements from the prior year. However, disclosure of the details of the restatement and recovery analysis required by Item 402(w) of Regulation S-K would need to be included in the company’s current year proxy or information statement where a restatement occurred “during or after” the issuer’s last completed fiscal year (e.g., a restatement of 2023 financials that occurred during 2024 would be subject to Item 402(w) disclosure in the proxy statement filed in 2025 for the 2024 fiscal year).
CDI 104.23 identifies an exception to the foregoing rule described in CDI 104.22 where a restatement of a prior year’s financial statements is made before the filing of the annual report for the current year (e.g., the 2023 financials are restated in early 2024) and the applicable annual report and Item 402(w) disclosures with respect to the restatement are then made in the annual report and proxy or information statement filed in the current year (e.g., 2024), in which case the 402(w) disclosures would not be required again in the annual report or proxy or information statement filed in the following year.
CDI 104.24 confirms that if an issuer reports a restatement of an annual period in a form that does not include a clawback-related check box on its cover page (e.g., a Form 8-K), then the issuer must mark the clawback check box on the cover of its next annual report that includes the restated financial statements.
Finally, CDI 104.25 clarifies that the check boxes on the cover page of the annual report do not need to be marked in a case where an issuer has restated its financial statements for certain quarters in a prior year but the restatements do not impact the annual periods in the financial statements included in the applicable annual report. However, the 402(w) disclosures are required to be included in the annual report (or incorporated by reference from the proxy or information statement) because the 402(w) disclosures are required for accounting restatements that impact interim periods only.
For further background and information on the clawback requirements under Exchange Act Rule 10D-1, please refer to our prior alert available here.
