Financial Reporting

What Is a 10-K Report?

When a company sells shares on the stock exchange, the SEC takes an extra interest in its finances. For that reason, certain companies are required to file a report each year updating its performance. This report is called a 10-K.
Although it is similar in content to a basic annual report, the 10-K typically has much more detail than a business would include in its annual report. A company does not have to stop doing an annual report once it goes public. However, instead of doing both an annual report and a Form 10-K, some publicly traded companies choose to send the 10-K to shareholders as well as the SEC.

What Is an Annual Report?

There is much more flexibility in an annual report, particularly if your business is small. An annual report is a document a company prepares each year to detail its performance. Although any business can create such a document to measure progress and set future goals, once a company has shareholders, it is usually a requirement.
By having this report in hand, shareholders can easily track how a business is performing. Instead of unpleasant surprises after consecutive years of losses, shareholders will be able to track changes from one year to the next. Annual reports may also be later requested by potential investors and creditors.

Who Files a 10-K Report?

Companies that have a registration statement for a public offering in effect are required to file a 10-K, but they are not the only ones. If a business has more than $10 million in assets held by 2,000 or more people, a 10-K is required. They will similarly need to file a 10-K if 500 or more of their shareholders are not accredited investors, or if the business’s securities are listed on the U.S. stock exchange.

There are exceptions to this rule, though. You can exclude those who own shares that they obtained as part of an exempt offering if it were included in an employee compensation plan. There are also some instances where you can exclude shareholders who bought stock as part of a crowdfunding effort. If your business owns assets worth more than $10 million and has 500 or more shareholders, though, you may want to take a look at the SEC’s Exchange Act Reporting and Registration requirements to see if you need to file.

Components of a 10-K

There are five major components of a 10-K, with businesses personalizing each of those sections with their own information. It kicks off with an overview of the business, followed by the risk factors the company faces and a five-year overview of its financial data. It then progresses to Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is where the business has the freedom to summarize the past year and ends with financial statements.

In your 10-K, you will need to have signed statements from your CEO and chief financial officer. They will swear in these statements that everything in that report is factual to the best of their knowledge. Once you have filed the Form 10-K, it becomes public information, and anyone considering buying stock in your company can access it.
Information in an Annual Report.

An annual report can be formatted any way you choose since it is designed primarily for your own shareholders. The goal is to provide a detailed accounting of your business’s financial health.

As with the 10-K, you will likely include detailed financial statements as part of your report. But you will also break them down using your own narrative. You will do this through a letter to the shareholders from your CEO, a section with operational and financial highlights and notes that you append to the financial statements.

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