When a company misses the statutory deadline to file its annual or quarterly report (10-K or 10-Q) with the U.S. Securities and Exchange Commission (SEC), the delay can negatively impact its financial performance—this is the view of experts at UHY, a professional services firm providing audit, tax, and consulting services.

UHY New York audit partner Ro Sokhi and Atlanta consulting practice managing director Amy Gallagher said in interviews that, depending on the circumstances, a delayed SEC filing can shake investor confidence, lead to a drop in stock price, and could even result in the company's stock being delisted.

However, Sokhi and Gallagher noted that multiple factors are stretching accounting departments thin and testing their ability to file on time. These factors include: a surge in new public companies in 2022, driving up demand for accountants; an increasingly stringent regulatory environment—for example, the Public Company Accounting Oversight Board (PCAOB) requiring companies to provide more documentation to support their accounting positions; and an accounting talent shortage, making it difficult for finance executives to fully staff their teams.

Sokhi said these forces together have created a "perfect storm," causing a growing number of companies of various sizes to struggle to meet filing deadlines.

In fact, according to a March report by Intelligize, the number of public companies announcing delayed annual report releases rose to 71, an increase of about 40% from 42 in the prior year. The late filers include well-known names: toy company Mattel, headquartered in El Segundo, California; Teflon maker Chemours, headquartered in Wilmington, Delaware; and Archer Daniels Midland, headquartered in Chicago, Illinois.

This does not necessarily spell trouble for all companies, but it does highlight the importance of strengthening internal controls, accounting systems, and reporting processes. Here are five steps finance executives can take to ensure financial reporting is organized and completed on time:

1. Eliminate "key person risk" through cross-training

Gallagher said to assess your accounting/financial reporting team to ensure there is no so-called "key person risk"—where only one person in the company understands the process and the information needed to complete financial reporting. "We have some clients who may have only one or two people responsible, and if one of them leaves, the work still needs to be done," she said. "That's where cross-training and getting others up to speed on the progress and process approach becomes critical."

2. Keep the filing calendar clearly planned

Notably, deadlines vary by company type—large accelerated filers, accelerated filers, or non-accelerated filers each differ. Regardless of which category a company falls into, CFOs must be keenly aware of deadlines. This is especially important during periods of reduced team size, as it is necessary to ensure enough staff are available to complete the tasks. "They should fully understand the time requirements well before the deadline and plan the reporting calendar and team availability in advance," Sokhi said.

3. Make good use of the grace period

For CFOs who know in advance they will miss a 10-K or 10-Q filing, the first step is to pivot and notify the SEC—by filing Form 12B-25 (the formal notice of late filing), which must be submitted within one day after the prescribed deadline. Sokhi said this step can earn the company a grace period.

4. Build in extra time for M&A workload

If there are significant transactions that may involve special accounting treatment and external firms for valuations or purchase price allocations, and these specialized capabilities may not be available internally, building in extra time is critical. "Many companies' accounting functions are designed for existing operations, and if a major transaction such as an acquisition or divestiture occurs, they may not have internal staff to handle the related accounting matters," Sokhi said.

5. Strengthen internal controls

Internal controls are the processes CFOs and their accounting teams establish within the company to ensure operations and financial transactions are properly accounted for. These controls include manual or automated controls, or requirements such as dual signatures for expenditures. Sokhi said: "Over the past 10 to 20 years, regulatory attention has increased significantly because the industry has recognized that if management has appropriate internal controls, auditors' workloads are reduced, and CFOs and accounting teams are more likely to complete financial reporting correctly."