Question

give an example of a qualified 10-k report

Answer 1

Introduction to 10-k report

A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance. Although similarly named, the annual report on Form 10-K is distinct from the often glossy "annual report to shareholders," which a company must send to its shareholders when it holds an annual meeting to elect directors (though some companies combine the annual report and the 10-K into one document). The 10-K includes information such as company history, organizational structure, executive compensation, equity, subsidiaries, an audited financial statements, among other information.

Companies with more than $10 million in assets and a class of equity securities that is held by more than 2000 owners must file annual and other periodic reports, regardless of whether the securities are publicly or privately traded. Up until March 16, 2009, smaller companies could use Form 10-KSB. If a shareholder requests a company’s Form 10-K, the company must provide a copy. In addition, most large companies must disclose on Form 10-K whether the company makes its periodic and current reports available, free of charge, on its website. Form 10-K, as well as other SEC filings may be searched at the EDGAR database on the SEC's website.

Every 10-k annual report contains 4 parts and 15 schedules. In non conformity of any of the items auditor will express an qualified opinion. For example in case financial statements are not prepared in conformity with GAAP.

Example of a qualified 10-k report:

Item 8 - “Financial Statements and Supplementary Data” requires the company’s audited financial statements. This includes the company’s income statement (which is sometimes called the statement of earnings or the statement of operations), balance sheets, statement of cash flows and statement of stockholders’ equity. The financial statements are accompanied by notes that explain the information presented in the financial statements.

U.S. companies are required to present their financial statements according to a set of accounting standards, conventions and rules known as Generally Accepted Accounting Principles, or GAAP. An independent accountant audits the company’s financial statements. For large companies, the independent accountant also reports on a company’s internal controls over financial reporting. The auditor’s report is a key part of the 10-K. Most audit reports express an “unqualified opinion” that the financial statements fairly present the company’s financial position in conformity with GAAP. If, however, an auditor expresses a “qualified opinion” or a “disclaimer of opinion,” investors should look carefully at what kept the auditor from expressing an unqualified opinion. Likewise, investors should carefully evaluate material weaknesses disclosed on internal controls over financial reporting.

In addition, the Sarbanes-Oxley Act of 2002 requires the company’s CEO and CFO to certify that the 10-K is both accurate and complete. These are called Sections 302 and 906 certifications, and you can usually find them in Exhibits 31 and 32.

You may also find “non-GAAP financial measures” in the 10-K. That means that the numbers do NOT conform to GAAP. While companies are permitted to present non-GAAP measures, they must also show how they differ from the most comparable corresponding GAAP financial measure. As an investor, it is up to you to decide how much weight to give to non-GAAP measures.