Following new SEC guidance, companies have a new way to 'fess up on errors in their next 10-K.
The Securities and Exchange Commission has issued guidance that will help companies erase prior misstatements on their financial statements. Additionally, the guidance explains how, going forward, companies should quantify errors and correct them.
Staff Accounting Bulletin No. 108 offers interpretive guidance on how a company with errors in its financial statements should determine whether the error is material enough to correct it. It's a problem fraught with complications when errors that are insignificant in any given year build up over time to a point at which — if they were corrected — would materially distort the financial results in the year in which the correction is made.
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