The importance of comprehensive and reliable financial statements for publicly held companies cannot be overstated. For SEC-registered companies working with a CPA audit firm, there are strict filing requirements and deadlines. But what about those public companies that trade exclusively on the over-the-counter (OTC) market?
In this article, we’ll discuss the reporting differences between OTC and SEC—and the consequences of PCAOB audit filing delinquency.
SEC Filing Requirements & Regulations
Companies listed on an exchange such as NASDAQ or NYSE are regulated by the Securities and Exchange Commission (SEC). Public companies that are registered with the SEC are required to abide by SEC regulations and reporting requirements.
The reporting requirements for SEC-registered companies include:
- Engage an independent CPA audit firm that is registered with the PCAOB to perform an audit of the financial statements.
- Filing annual reports on Form 10-K that include audited financial statements.
- Filing quarterly reports on Form 10-Q that include unaudited financial statements.
- If applicable, file a Form 8-K to disclose material events or transactions.
- Other forms and documents may be required, depending on the company’s type of business and operations.
What does SEC compliance mean for companies?
Companies that comply with SEC regulations and filing deadlines remain listed on the exchange and are considered “fully reporting.” Registrants that fail to meet these requirements may be delisted from their exchange and sent to trade in the OTC market.
OTC Markets Overview
The Over-the-Counter (OTC) Market is not an exchange like NASDAQ or NYSE—rather, it’s a network of brokerages through which securities are sold in over-the-counter transactions. The Financial Industry Regulatory Authority (FINRA) monitors the OTC market, and they are responsible for protecting investors by ensuring it operates fairly and efficiently. But their regulatory requirements are not as stringent as the SEC.
OTC Reporting Difference
In general, companies trading on the OTC are not required to register their securities through the SEC or meet SEC reporting requirements. However, some OTC markets do require a higher level of transparency. For example, OTCQB and OTCQX require that companies either register their securities with the SEC and have audited financial statements performed by a CPA audit firm that’s registered with the Public Company Accounting Oversight Board (PCAOB) or are current in their regular reporting requirements to a U.S. banking or insurance regulator.
Since companies listed on the OTC Market often have limited disclosure requirements, they are considered less transparent than those listed on exchanges or regulated by the Securities and Exchange Commission (SEC).
Involuntary Delisting to OTC Market
When a company violates the regulations of the SEC or fails required document filings, it can be involuntarily pushed off the exchange. If a company wants to return to the exchange, there are several steps it must take to become current and regain its place back on an exchange. These steps can be time-consuming and costly, so it’s essential to make sure you stay compliant with all SEC regulations and filing deadlines.
Meet Deadlines with a Trusted SOX 404 Compliance Partner
If you’re concerned about your next public company audit and meeting internal control and compliance expectations as a public company or during IPO readiness, working with a trusted compliance partner is critical to protecting your business. An experienced team can help ensure your internal controls are designed, documented, and operating effectively, minimizing the risk of audit delays or filing errors.
Our team of talented professionals understands the complexities of financial reporting and regulatory compliance, particularly as they relate to SOX 404.
At Assurance Dimensions, we provide valuable SOX 404 compliance services to companies navigating the IPO process or preparing for SEC-level reporting. We support management in evaluating and documenting internal controls over financial reporting, identifying control gaps, and strengthening your compliance posture.
Contact us today to learn more about our audit and assurance services.
