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Financial Statement Reporting Under Regulation S-X (SEC)



Financial statement reporting under Regulation S-X is a very important regulation for a publicly held company; the Securities and Exchange Commission (SEC) uses this regulation as principal one to oversee the form and content of financial statements submitted by the securities issuers. If you are in the United States and working for a public company, knowing the regulation can be as important as knowing your parent’s name.

Though you can access the complete text on the SEC’s website for more detail regulation, this post is a light overview that can be a good start. If the regulation is applicable to your company, then I strongly suggest you to peruse the complete text, in there.


The SEC exerts a considerable amount of control over the financial reporting activities of publicly held companies, particularly in the areas of new securities issuance and the ongoing release of financial information to the public. One, among all-important regulations, is the Reg S-X, about financial statement reporting.

SEC’s Regulation S-X is comprised of the following sections:


Qualifications and Reports of Accountants (Article 2)

The SEC will not recognize as a CPA any person who is not currently registered to practice in the state where his or her home or office is located.

SEC will also not recognize a CPA as being independent if the CPA has a financial interest in the entity being audited, or was a manager or promoter of an auditee at the time of the audit.

SEC requires a CPA’s report be dated and manually signed, state that GAAP was followed, state an audit opinion, and clearly itemize any exceptions found.


General Instructions as to Financial Statements (Article 3)

Balance sheets must be submitted for the last two year-ends, as well as statements of income and cash flow for the preceding three years.

If interim financial statements are provided, then standard year-end accruals should also be made for the shorter periods being reported upon.

Changes in stockholders’ equity shall be included in a note or a separate statement.

The financial statements of related businesses can be presented to the SEC in a single consolidated format if the companies are under common control and management during the period to which the reports apply. There are a number of tests to determine whether or not consolidated results are required, as well as for how many time periods over which the combined financial statements must be reported.

If a registrant is inactive (revenues and expenses of less than $100,000, and no material changes in the business or changes in securities) during the period, then its submitted financial statements can be unaudited.

There are also special reporting requirements for foreign private issuers, real estate investment trusts, and management investment companies.


Consolidated and Combined Financial Statements (Article 3a)

For financial statement reporting purposes, a registrant shall consolidate financial results for business entities that are majority owned, and shall not do so if ownership is in the minority.

A consolidated statement is also possible if the year-end dates of the various companies are not more than 93 days apart.

Inter-company transactions shall be eliminated from the consolidated reports. If consolidating the results of a foreign subsidiary, then the impact of any exchange restrictions shall be made.


Rules of General Application (Article 4)

Financial statements not created in accordance with GAAP will be presumed to be misleading or inaccurate. If the submitting entity is foreign-based, it may use some other set of accounting standards than GAAP, but reconciliation between its financial statements and those produced under GAAP must also be submitted.

Footnotes to the statements that duplicate each other may be submitted just once, as long as there are sufficient cross-references to the remaining footnote. The amount of income taxes applicable to foreign governments and the United States government shall be shown separately, unless the foreign component is no more than 5% of the total.

There must also be reconciliation between the reported amount of income tax and the amount as computed by multiplying net income by the statutory tax rate. This article also contains an extensive review of the manner in which oil and gas financial results must be reported.


Balance Sheet of Commercial and Industrial Companies (Article 5)

This article describes the specific line items and related footnotes that shall appear in the financial statements.

On the balance sheet, this shall include:

  • Cash.
  • Marketable securities.
  • Accounts and notes receivable.
  • Allowance for doubtful accounts.
  • Unearned income.
  • Inventory.
  • Prepaid expenses.
  • Other current expenses.
  • Other investments.
  • Fixed assets and associated accumulated depreciation.
  • Intangible assets and related amortization.
  • Other assets.
  • Accounts and notes payable.
  • Other current liabilities.
  • Long-term debt.
  • Minority interests (footnote only).
  • Redeemable and non-redeemable preferred stock.
  • Common stock.
  • Other stockholder’s equity.
  • On the income statement, this shall include:
  • Gross revenues.
  • Costs applicable to revenue.
  • Other operating costs.
  • Selling.
  • General and administrative expenses.
  • Other general expenses.
  • Non-operating income.
  • Interest.
  • Non-operating expenses.
  • Income or loss before income taxes.
  • Income tax expense.
  • Minority interest in income of consolidated subsidiaries.
  • Equity in earnings of unconsolidated subsidiaries.
  • Income or loss from continuing operations.
  • Discontinued operations.
  • Income or loss before extraordinary items.
  • Extraordinary items.
  • Cumulative effect of changes in accounting principles.
  • Net income or loss.
  • Earnings per share data.


Balance Sheet of Registered Investment Companies (Article 6)

SEC requires this type of company to file a balance sheet that contains the following line items:

  • Investments in securities of unaffiliated issuers.
  • Investments in and advances to affiliates.
  • Investments other than securities.
  • Total investments.
  • Cash.
  • Receivables.
  • Deposits for securities sold short and open option contracts.
  • Other assets.
  • Total assets.
  • Accounts payable and accrued liabilities.
  • Deposits for securities loaned.
  • Other liabilities.
  • Notes payable, bonds, and similar debt.
  • Total liabilities.
  • Commitments and contingent liabilities.
  • Units of capital.
  • Accumulated undistributed income or loss.
  • Other elements of capital.
  • Net assets applicable to outstanding units of capital.

The statement of operations for issuers of ‘face-amount’ certificates shall include the following line items:

  • Investment income.
  • Investment expenses.
  • Interest and amortization of debt discount and expense.
  • Provision for certificate reserves.
  • Investment income before income tax expense.
  • Income tax expense.
  • Investment income—net.
  • Realized gain or loss on investments—net.
  • Net income or loss.


Employee Stock Purchase, Savings, and Similar Plans (Article 6A)

These types of plans must present a statement of financial condition that includes the following line items:

  • Investments in securities of participating employers.
  • Investments in securities of unaffiliated issuers.
  • Investments.
  • Dividends and interest receivable.
  • Cash.
  • Other assets.
  • Liabilities.
  • Reserves and other credits.
  • Plan equity and close of period.
  • These plans must include in their statements of income and changes in plan equity the following line items:
  • Net investment income.
  • Realized gain or loss on investments.
  • Unrealized appreciation or depreciation on investments.
  • Realized gain or loss on investments.
  • Contributions and deposits.
  • Plan equity at beginning of period.
  • Plan equity at end of period.


Balance Sheet of Insurance Companies (Article 7)

An insurance company must present a balance sheet that includes the following line items:

  • Investments.
  • Cash.
  • Securities and indebtedness of related parties.
  • Accrued investment income.
  • Accounts and notes receivable.
  • Reinsurance recoverable on paid losses.
  • Deferred policy acquisition costs.
  • Property and equipment.
  • Title plant.
  • Other assets.
  • Assets held in separate accounts.
  • Total assets.
  • Policy liabilities and accruals.
  • Other policyholders’ funds.
  • Other liabilities.
  • Notes payable, bonds, mortgages and similar obligations, including capitalized leases.
  • Indebtedness to related parties.
  • Liabilities related to separate accounts.
  • Commitments and contingent liabilities.
  • Minority interests in consolidated subsidiaries.
  • Redeemable preferred stock.
  • Non-redeemable preferred stock.
  • Common stock.
  • Other stockholders’ equity.
  • Total liabilities and stockholders’ equity.


Balance Sheet of Bank Holding Companies (Article 9)

A bank holding company must present a balance sheet that includes the following line items:

  • Cash and cash due from banks.
  • Interest-bearing deposits in other banks.
  • Federal funds sold and securities purchased under resale or similar agreements.
  • Trading account assets.
  • Other short-term investments.
  • Investment securities.
  • Loans.
  • Premises and equipment.
  • Due from customers on acceptances.
  • Other assets.
  • Total assets.
  • Deposits.
  • Short-term borrowing.
  • Bank acceptances outstanding.
  • Other liabilities.
  • Long-term debt.
  • Commitments and contingent liabilities.
  • Minority interest in consolidated subsidiaries.
  • Redeemable preferred stock.
  • Non-redeemable preferred stock.
  • Common stock.
  • Other stockholders’ equity.
  • Total liabilities and stockholders’ equity.
  • A bank holding company’s income statement must include the following line items:
  • Interest and fees on loans.
  • Interest and dividends on investment securities.
  • Trading account interest.
  • Other interest income.
  • Total interest income.
  • Interest on deposits.
  • Interest on short-term borrowings.
  • Interest on long-term debt.
  • Total interest expense.
  • Net interest income.
  • Provision for loan losses.
  • Net interest income after provision for loan losses.
  • Other income.
  • Other expenses.
  • Income or loss before income tax expense.
  • Income tax expense.
  • Income or loss before extraordinary items and cumulative effects of changes in accounting principles.
  • Extraordinary items.
  • Cumulative effects of changes in accounting principles.
  • Net income or loss.
  • Earnings per share data.


Interim Financial Statements (Article 10)

An interim statement does not have to be audited. Only major line items need be included in the balance sheet, with the exception of inventories which must be itemized by raw materials, work-in-process, and finished goods either in the balance sheet or in the accompanying notes.

Any assets comprising less than 10% of total assets, and which have not changed more than 25% since the end of the preceding fiscal year, may be summarized into a different line item.

If any major income statement line item is less than 15% of the amount of net income in any of the preceding three years, and if its amount has not varied by more than 20% since the previous year, it can be merged into another line item.

Disclosure must also be made in the accompanying footnotes of any material changes in the business since the last fiscal year end.


Pro forma Financial Information (Article 11)

Pro forma information is required in cases where a business entity has engaged in a business combination or roll-up under the equity method of accounting, or under the purchase or pooling methods of accounting, or if a company’s securities are to be used to purchase another business.

It is also required if there is a reasonable probability of a spin-off, sale, or abandonment of some part or all of a business.

The provided information should consist of a pro forma balance sheet, summary-level statement of income, and explanatory notes.

The presented statements shall show financial results on the assumption that the triggering transaction occurred at the beginning of the fiscal year, and shall include a net income or loss figure from continuing operations prior to noting the impact of the transaction.


Form and Content of Schedules (Article 12)

This article describes the format in which additional schedules shall be laid out in submitted information, including layouts for valuation and qualifying accounts. It also itemizes formats for the display of information for management investment companies, which include the following formats:

  • investments in securities of unaffiliated issuers;
  • investments in securities sold short;
  • open option contracts written;
  • investments other than securities;
  • investments in and advances to affiliates;
  • summary of investments;
  • supplementary insurance information;
  • reinsurance; and
  • supplemental information.

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