For public companies offering employee stock purchase plans or defined contribution plans with options to invest in the plan sponsor’s stock, Form 11-K is an essential compliance document designed to ensure transparency and accountability to employees and investors.
The annual 11-K report, which provides a detailed account of the plan’s financial health and its policies, is required by the U.S. Securities and Exchange Commission (SEC) to maintain investor confidence in a company’s governance practices. Understanding what Form 11-K entails, stakeholder expectations for the form, and how to file the report can help companies stay compliant and avoid potential compliance risks.
What Is Form 11-K?
Form 11-K must be filed annually by companies that offer employee stock purchase, savings, or similar plans in which employees have the option to invest in company stock. The filing is generally due within 90 days after the end of a given plan’s fiscal year.
Public companies, as well as certain private entities with registered employee stock plans, are required to submit Form 11-K if they are subject to SEC regulations. The content of Form 11-K covers several key areas:
- Audited financial statements for the past two fiscal years of the plan, a statement of net assets available for benefits, a statement of changes in net assets, and accompanying notes.
- Audited supplemental information, including a schedule of assets and any other applicable schedules for the period under audit.
- Information about plan participants, such as the number of participants and their investment activities.
Other important details include a description of the plan’s purpose, structure, and any significant changes made during the reporting period, as well as disclosures such as administrative fees or conflicts of interest that could affect the plan.
Financial statements must be prepared in accordance with SEC requirements (Regulation S-X) or ERISA requirements.
The Filing Process
Meeting the filing requirements involves understanding the process, including the deadlines, electronic filing mandates, and the SEC’s review procedures. Form 11-K must be filed within 90 days after the plan’s fiscal year end, and if the plan is subject to ERISA, it should be filed within 180 days of the plan’s fiscal year-end. Companies can request an extension if necessary.
The form must be submitted electronically via the SEC’s EDGAR system. Once filed, the SEC reviews the document for completeness and compliance, and may ask for additional information or corrections if needed.
The Role of Auditors in 11-K Filings
Auditors play a crucial role in the Form 11-K process. They are responsible for auditing the plan’s financial statements to ensure accuracy and compliance with applicable standards. Generally, a financial statement audit is required to evaluate the plan’s net assets and overall financial health, and to obtain reasonable assurance the plan is being managed according to its stated terms.
The auditor’s report, which accompanies Form 11-K, provides an opinion on whether the financial statements are presented fairly in all material respects. A clean auditor’s opinion indicates sound management practices, helping to maintain investor trust.
To stay compliant, companies should focus on several best practices:
- Keeping records accurate and current, reconciling discrepancies promptly, and engaging with auditors early can help ensure a smooth filing process.
- Robust internal controls are essential for preventing errors and ensuring all financial information is accurate.
- Regular internal audits and reviews can catch discrepancies early, reducing the risk of penalties or fines from the SEC for non-compliance.
Understanding and filing Form 11-K correctly is crucial for any company with employee stock purchase plans. By meeting stakeholder and regulatory expectations, companies can maintain compliance, protect their reputation, and continue to foster trust among employees and investors.
To learn more about Form 11-K filling and the audit process, contact us.
