On April 11, 2025, the Securities and Exchange Commission (the “Commission”) published six new Compliance & Disclosure Interpretations (“C&DIs”) relating to the Form 10-K restatement and clawback analysis check boxes and the related disclosures under Item 402(w) of Regulation S-K available here.
As a refresher, the cover of Form 10-K includes two check boxes—the first one indicates when the financial statements included in the Form 10-K reflect the correction of an error to previously issued financial statements and the second one when those error corrections are restatements that required a clawback recovery analysis under Rule 10D-1(b) of the Securities Exchange Act of 1934 (i.e. pursuant to the registrant’s mandatory clawback policy). In addition, Item 402(w) of Regulation S-K requires registrants to include narrative disclosure regarding the clawback policy analysis in the event of a restatement that covers how the recoverable amount was calculated, the value of any recoverable amount that remains outstanding and whether the registrant is relying on the impracticability of recovery exception (and the justification of such reliance).
Below is a summary of the new C&DIs:
Question 104.20 – What is a “correction of an error”?
Registrants should look to GAAP guidance to determine when a change to its previously issued financial statements in an annual report represents the “correction of an error” (and thus requires marking the correction check box).
As a result, when the financial statements of the registrant included in the filing have been revised to reflect the correction of an error to previously issued financial statements, the registrant must mark the first check box, regardless of whether a restatement was required. Conversely, however, out-of-period adjustments—when an immaterial prior period error is corrected in the current period—do not require registrants to mark the correction check box because, in those scenarios, there is no revision of the previously issued financial statements.
Question 104.21 – Even if no recovery was required, if there was analysis under the clawback policy, check the box.
If there is a restatement and the registrant determines under its clawback policy that no recovery is necessary, the registrant must still check the box indicating that a clawback recovery analysis was required by the restatement. For example, if no incentive-based compensation was received by any covered executive during the relevant lookback period under their policy or the incentive-based compensation was not based on the financial reporting measure impacted by the restated financials, then no recovery would be required. However, in both of these cases, a clawback recovery analysis is still required.
Question 104.22 – No need to check the boxes for the second year the restated financials are included, but don’t forget Item 402(w).
If a registrant files an amended annual report for year 1 that includes restated financials, which are subsequently included in the year 2 annual report for the following year, there is no need to continue to mark the check boxes on the year 2 annual report as long as there are no incremental or additional restatements.
For example, if a registrant has a big “R” restatement to its 2024 financials and files a Form 10-K/A in late 2025, it would check both boxes on that Form 10-K/A cover page. When those same restated financials are included in the 2025 10-K filed in early 2026, the check boxes do not need to be marked again. However, the SEC has clarified that when the proxy statement is filed in early 2026 that includes 2025 executive compensation Item 402 disclosures, the registrant must include the required Item 402(w) information because the restatement took place “during or after” the “last completed fiscal year.” This is required even if the registrant included in the Form 10-K/A information explaining why application of its clawback policy resulted in no recovery.
Question 104.23 – Item 402(w) disclosure is generally only required once.
In year 3, prior to filing the year 2 annual report, a registrant determines that a restatement of the year 1 financials is required and includes the restated financials in the year 2 annual report (with both Form 10-K check boxes marked). If the year 2 annual report (or a proxy statement or information statement incorporated by reference in the year 2 annual report) includes the disclosure required by Item 402(w)(2) of Regulation S-K, then the year 3 annual report (or a proxy statement or information statement incorporated by reference therein) is not required to also include such disclosure even though the restatement occurred “during or after” year 3 (i.e. the registrant’s last completed fiscal year), so long as there are no additional facts that would affect the conclusion of the initial 402(w)(2) clawback analysis.
Question 104.24 – Check the box on the first Form 10-K that includes restated financials.
When restated financials are initially reported on a filing that does not include a check box requirement, such as a Form 8-K or a registration statement, the check boxes on the next annual report that includes the restated financial statements must be marked.
Question 104.25 – Interim period corrections—Item 402(w) disclosure but no check boxes?
If a registrant determines during Q4 that it is required to restate financials from Q1 to Q3 of that year, there is no requirement to mark the check boxes on the annual report for such year because the restatements do not impact the annual periods included in that annual report (even if there is disclosure regarding the interim restatements).
However, the registrant is still required to include Item 402(w) disclosure in the annual report (or a proxy statement or information statement incorporated by reference therein).
While the check boxes on the annual report are limited to accounting restatements that impact annual periods, a registrant’s recovery analysis and related disclosure is also implicated by restatements that impact only interim periods.