Lesson 9 of 10
The 10-Q, and the quarter that has none
What a quarterly report contains, why it is reviewed rather than audited, and how to recover the fourth quarter, which has no 10-Q of its own.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- There is no fourth-quarter 10-Q, so its figures come from the earnings release or from subtracting nine months from the full year.
- A 10-Q is condensed and reviewed, not audited, and carries only a selected subset of the annual notes.
- The same quarter can read as a collapse or a small gain, depending only on which prior period you compare it with.
A company files a 10-Q for each of its first three fiscal quarters and then a 10-K for the whole year, so no 10-Q ever covers the fourth quarter. An earnings release furnished on Form 8-K (The form a company files within days of a major event.) often shows it, unaudited. Otherwise you recover it by subtraction.
Four filings, one fiscal year
- Q110-QReviewed, not audited. Due 40 or 45 days after quarter end.
- Q210-QReviewed, not audited. Due 40 or 45 days after quarter end.
- Q310-QReviewed, not audited. Due 40 or 45 days after quarter end.
- Year end10-K, the full yearDue in 60, 75 or 90 days. Audited.
Condensed, and reviewed rather than audited
A review consists mainly of inquiry and analytical procedures. It is substantially narrower than an audit and expresses no opinion on the statements. The statements are labelled unaudited, and a review report, when included, says what a review is. The notes are also a selected subset, chosen on the assumption that the reader already has the last 10-K. A note that appears every year in the annual report may simply be absent from a quarterly one, and its absence says nothing on its own. The fourth quarter's figures come out of the year-end audit instead, which is where annual adjustments tend to land.
Recovering the fourth quarter
Recovering the fourth quarter
- Full year, from the 10-K1,000
- Nine months, from the third 10-Q−690
- Fourth quarter= 310
The method works for income statement and cash flow lines, which accumulate through the year. It does not work for balance sheet lines, which are already point-in-time and are read directly from whichever statement carries the date you want. Per-share figures do not subtract: work out fourth-quarter earnings per share from that quarter's profit and its own share count. A 52 or 53 week fiscal year puts a 14-week quarter in some years, so that quarter's growth against a 13-week one is partly calendar.
The quarter that never existed
The subtraction breaks when a restatement sits between the two filings. A company announces one on Form 8-K, Item 4.02, when earlier statements can no longer be relied upon. After that, the nine-month figure and the annual one are on different bases. Check the filing history for an 8-K in the window, and check the 10-K's own restatement note, before trusting the result. A changed segment definition between the two filings breaks any segment series recovered the same way.
Same quarter, two comparisons
Check yourself
How much scrutiny do a 10-Q's statements receive, compared with a 10-K's?
- The same audit, on a faster schedule
- More, because it is filed sooner
- A review, which is narrower than an audit and gives no opinion
Show the answer
Answer: C.
The statements are labelled unaudited. A review is mainly inquiry and analytical procedures, and it gives no opinion.How do you find a company's fourth-quarter revenue?
- Read it directly from a 10-Q
- Wait for the proxy statement
- Subtract the first nine months from the full year
Show the answer
Answer: C.
No 10-Q covers the fourth quarter. Income statement and cash flow lines accumulate through the year, so subtraction recovers them.A restatement was filed between the third 10-Q and the 10-K. What happens if you subtract anyway?
- Nothing, the subtraction still works
- The restatement corrects the result automatically
- The fourth quarter you compute never existed on a consistent basis
Show the answer
Answer: C.
The two filings are on different bases once one is restated, so the subtraction mixes an original figure with a corrected one.Sources
- Form 10-Q, General Instruction A(1): 40 and 45 day filing deadlines by filer status.
- Form 8-K, Item 2.02: results of operations, the form an earnings release is furnished on.
- Form 8-K, Item 4.02: a determination that previously issued financial statements should no longer be relied upon.
What this leaves out
- This lesson describes Form 10-Q as filed by a domestic company. Foreign private issuers are not required to file it and report on different terms.
- A quarterly figure recovered by subtraction is a computation, not a disclosure. A restatement or a changed fiscal year between the two filings breaks it.
- The worked examples use round invented numbers so the arithmetic can be checked by hand. Nothing here is advice about any security.