topics of focus in the coming year. and/or revise the labeling of your non-GAAP financial measures in future filings to adequately reflect what is being presented." (SEC Comment Letter to GGP Inc., (March 30, 2017).) EY helps clients create long-term value for all stakeholders. Subscribe to receive Roadmap series publications via email. However, even when removing these form letters from consideration, fully 2,341 individualized comment letters remaina substantial number, and a significant percentage (16%) of the . This box/component contains JavaScript that is needed on this page. There may be several rounds of letters from the SEC staff and responses from the filer until the issues identified in the review are resolved. Does not include the SECs closing letter The Office generally endorses these recommendations and makes additional recommendations in its report. Are you still working? Is related to reviews conducted by the Most frequent comment areas The SEC staff continues to focus on many of the same topics that we highlighted last year. In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staffs comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area. While it is difficult to predict what new comment letter trends The participants agreed that, taken as a whole, the Division's comment letter process was achieving its primary objective to improve disclosure to investors. 2023. We bring together extraordinary people, like you, to build a better working world. This means firms need to capture, archive, and supervise all written business communications. However, adequate review coverage of issuer filings, given limited staff resources, is essential to the mission of the Division. 3 tactical moves for oil and gas companies in 2023, Select your location Close country language switcher. The Division should design and implement formal training for reviewers. While it is difficult to predict what new comment letter trends are on the horizon, we look to the Commissions priorities to help us predict topics of focus in the coming year. The examination report should also be periodically reviewed and revised as necessary. See Terms of Use for more information. Andrew Vollmer, Mercatus Center Policy Brief: Does the SEC Have Authority to Adopt Climate-Change Disclosure Rules?, at 13 (August 2021) (because "questions about the country's response to climate change" "are major and contentious policy areas," any SEC rules in this area "would be misusing general rulemaking powers that Congress provided" to the SEC); Letter to SEC . In these unprecedented times, the SEC continues to provide registrants with How does the health equity ecosystem move from awareness to action? companies. }); This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. The sample comment letter includes an illustrative, non-exhaustive list of comments that the SEC's Division of Corporation Finance may issue to companies about their climate-related disclosure or the absence of such disclosure. Other industry groups have manuals containing guidance on issues specific to that industry. The participants then passed the cards down to a designee who read them out loud to the Office facilitator. Financial_services_DM. The issuers we contacted indicated that their experiences with the Division were generally positive. Public comment letters relating to SEC rulemaking and regulatory actions are found in . We asked participants to review the worksheets relating to their workshop and verify their accuracy. Source: Audit Analytics SEC UPLOAD of comment letters related to Forms 10 -K and 10 -Q that were publicly available during the 12 -month periods ended on 30 June each year. This week, Heather Horn was joined by Valerie Wieman, a partner in PwC's National Office, to discuss a brand new comment letter tren jQuery('#chat').click(function(){ These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. 27 11. future area of focus for sec comment letterschucks and pearls meaning. Includes only information related to reviews We designed the workshops to be homogeneous with respect to management or professional staff to facilitate subsequent comparisons. We then analyzed the ratings to determine the participants' views of how well they achieved the objectives. In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services: Functional cookies to enhance your experience (e.g. The following areas are central to the standard's accounting and disclosure requirements and are often the subject of SEC comment letters: 1. comments joining the list. Considerations, Including Industry Disclosure-event abnormal returns, revenue . Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . The questions gave structure to the discussions and facilitated the conduct of the workshops. Social login not available on Microsoft Edge browser at this time. After completing the review, designated senior staff (reviewers) look over the filing and proposed comments. PwC. EY | Assurance | Consulting | Strategy and Transactions | Tax. Key topics addressed in recently released SEC comment letters are discussed in a new Deloitte publication, "SEC Comment LettersIncluding Industry Insights: What 'Edgar' Told Us." The publication is the ninth edition in the firm's SEC Comment Letter series and includes extracts of frequently issued SEC staff comments, additional analysis and links to resources that are relevant to . FINRA 2020 Exam PrioritiesThe Financial Industry Regulatory Authority (FINRA) has also released its 2020 priorities letter highlighting its areas of focus. Of these, 90% resulted in changes in income of 10% or more. By way of comparison, thirty-seven rules mandated by the Dodd-Frank Act and promulgated by the SEC before the end of 2014 received, on average, only . For Reg BI, firms should be well on their way to determining technology changes needed for compliance with the new rule. Comment Letters. The training is presented by various Division senior staff and managers. Management Review Similarly, California Attorney General Rob Bonta argues that climate risk . referred to generally as filings). The Division has training for new staff examiners and accountants. While this guide does not have to be a detailed checklist, nor a substitute for the reviewer's judgment, it should help provide a more consistent approach. We made several comparisons (e.g., how well ratings aligned). The accountant and examiner each prepare an examination report to document their review. However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. 5 A sample comment letter posted on the . Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. Audit Report, Appendix B - Effectiveness Rating Scales IPO and uses that cash, the equity of the SPAC, or both to fund the The review staff faxes comments to the issuer, generally with a follow-up copy by mail. It is for your own use only - do not redistribute. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets. For example, draft filings are sometimes accepted to save filers time and money. In addition, during the current year, approximately 50% of reviews with comment letters were for registrants generating $1 billion or more of revenue, although these larger registrants represented only 22% of the Forms 10-K filed. The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. However, in certain industries, such as real estate, banking, and insurance, the checklist is augmented by specialized requirements for that industry called industry guides. investors. Please enable JavaScript to view the site. Also, some reviewers are seen as not willing to discuss their review results with the staff. By Anonymous. They felt that segregating the accounting and legal comments in the comment letter would make it easier for the issuer to contact the originator of the comments. After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. STUDIO DEVELOPMENT TEAM +++. 2 For example, the Division contends that as a result of staff comments in FY 1996, forty-one companies were required to restate their income. 6LinkedIn 8 Email Updates, Appendix A - Control Self Assessment Methodology. comments on accounting and reporting related to these matters. Cybersecurity, strategy, risk, compliance and resilience, Value creation, preservation and recovery, Explore Transactions and corporate finance, Climate change and sustainability services, Strategy, transaction and transformation consulting, Real estate, hospitality and construction, How blockchain helped a gaming platform become a game changer, How to use IoT and data to transform the economics of a sport, M&A strategy helped a leading Nordic SaaS business grow. Quantitative Analysis International Leadership of Texas (ILTexas) is a free public charter school serving more than 22,000 K-12 students at 21 campuses in the Dallas-Fort Worth, Houston, Cleveland and College Station . In our paper, SEC Comment Letters and M&A Outcomes, we examine the impact of one transaction-specific type of SEC comment letter, Form S-4 reviews, on short- and long-term M&A outcomes. Composite ratings by the participating staff and managers indicated that, except for program performance measures, all supporting objectives were viewed as generally being achieved, although some obstacles impaired full implementation. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. Examples include: send to my personal email, respond to my gmail account, text me, lets take this offline. These common phrases are indicative of the risk of using unauthorized communication channels. SEC Comment Letter Trends. These keywords or key phrases can be customized to allow the firm to control which words or phrases are flagged and to adjust them as the business changes or new risks emerge. Keeping you up to date about SEC staff positions on reporting matters and proposed rulemaking that will affect registrants. Staff Performance Measures, Appendix A - Control Self Assessment Methodology DTTL (also referred to as "Deloitte Global") does not provide services to clients. comments the Division issued during its reviews of periodic filings of public COVID-19 pandemic, Russias invasion of Ukraine, supply-chain and labor issues, OCIE notes that the positive impact of effective compliance is clear from the exams it has conducted.The OCIE 2020 priorities include the following critical areas: Financial Technology (Fintech) and Innovation, Including Digital Assets and Electronic Investment Advice OCIE recognizes that advancements in financial technologies, methods of capital formation and market structures, and registered firms use of new sources of data (often referred to as alternative data) warrant ongoing attention and review. Participants were generally pleased with the training they received. 4. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. expanded disclosures related to emerging issues. The checklist is generally the same for all the industry groups. Separately, we also reviewed feedback from issuers on the process and analyzed information on comment letters and filing processing to determine conformance to Division procedures and timeliness goals. We help fill the void in the literature by examining the influence of SEC comment letters on one type of transactional . Only three of the companies on the list raised issues concerning the Division's filing review process that resulted in a written response from the Division to the Chairman's office. On September 22, 2021, the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) issued a sample comment letter to highlight its increased focus on climate change-related disclosures or the absence of such disclosures in issuer filings under the Securities Act and the Exchange Act. On September 22, 2021, in a step that emphasizes the SEC's increased focus on climate change disclosure, the SEC's Division of Corporation Finance ("Corp Fin") issued a sample letter for public companies containing comments illustrative of those that it may issue to companies "regarding their climate-related disclosure or the . Under the Divisions filing review process, the Division performs some level of review of each registrant at least once every three years and may issue comments to such registrants. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. Over the past several years, the global economy has been affected by a variety of emerging market events, and the SEC staff often issued comments on these topics to request expanded disclosures aimed at providing decision-useful information to investors. Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. Management indicated that review of foreign filers was facilitated in an effort to encourage foreign issuers to register their securities with U.S. markets. include registrant responses. At EY, our purpose is building a better working world. Applicability. The composite ratings above of actual achievement by the participating managers and staff indicated that, except for program performance measures, the supporting objectives were generally being achieved, although some obstacles were impairing full implementation. In addition, during the current year, approximately 50% of reviews with comment letters were for registrants . In September 2021, the Securities and Exchange Commission (SEC) provided a sample comment letter that included nine potential climate-related comments the SEC may issue to companies regarding their climate-related disclosure or the absence of such disclosure. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. Do your firm and your associated persons consider the express new elements of care, skill, and costs when making recommendations to retail customers? The comparisons included analysis of management versus staff, actual achievement versus importance, and opportunities for improvement. The Commission is currently seeking a contractor to modernize EDGAR. They met twice to discuss the issues and identify potential actions to enhance the comment letter process. If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. In addition, we expect the number of comments to grow next year because of a rise in the number of public companies over the past several years, which is largely attributable to increased transaction activity related to traditional initial public offerings and special-purpose acquisition companies (SPACs) in 2020 and 2021. Program performance measures are used to measure and evaluate the performance of the review of filings. Where possible, firms should block access to these email platforms through their networks. We use cookies to personalize content and to provide you with an improved user experience. Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. Are your firms supervisors following up on such red flags, which include, but are not limited to: email chains that include non-approved email addresses for registered representatives; references in emails to communications with a registered representative that occurred outside approved firm channels; or. public offerings (IPOs) and special-purpose acquisition companies (SPACs). Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, explore the SEC comment letter trends in other sectors, Non-GAAP financial measures: 5 things you need to know podcast, Liabilities, payables and accrual estimates, {{favoriteList.country}} {{favoriteList.content}}. year). Firms cannot assume advisors arent using their personal emails to communicate with clients. Smarsh is a registered trademark of Smarsh Inc. in the European Union. Analytics. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. 5 The supporting objective is relatively important and it should be generally implemented at the Commission. The Division also uses the number of filings reviewed to justify its budget staffing levels. After discussing an objective, participants used 4x6 inch cards to anonymously rate, using a scale of 1 to 7, how well the Division achieved the objective. Since mid-2021, the SEC has issued at least three comment letters asking companies to address climate disclosure in the general disclosure section of their filings. She is a frequent speaker at industry conferences and a contributor to various online publications. ttp://www.sec.gov/answers/commentletters.htm. All rights reserved. Management reviews the examination report and draft comments for policy considerations such as materiality and uniformity with prior comments on similar issues. The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. 2019 - 2023 PwC. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. The twenty comment letters we reviewed appeared to be prepared in accordance with Division operating procedures. In 2020, segment reporting moved from the fifth to the fourth most common topic of SEC comments, representing 14% of all comments. Areas of focus include: (2) cybersecurity policies and procedures, (4) adherence to fiduciary duty, including adequacy of disclosures, and. Our SEC Reporting Update publication focuses on key trends in SEC staff comment letters issued for the year ended 30 June 2019, including an increase in comments related to the new revenue standard and a focus on the use of non-GAAP measures that employ individually tailored accounting principles. The Division should review the role of futures comments to determine if there is any adverse impact on disclosure if there is no follow-up, and take appropriate action. trend may have resulted from (1) the SECs targeted review of climate-change (review years). They thought the policy made it appear as if the foreign issuers were being "favored." Program Performance Measures On September 22, 2021, the Staff of the SEC published a sample comment letter regarding climate change disclosures. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. Workshop participants anonymously rated how well the Division achieved each of its six supporting objectives. The SEC Division of Corporation Finance's filing review process is a key function utilized by the SEC staff to monitor the critical accounting and disclosure decisions applied by registrants. At the beginning of the audit, the Office audit staff worked closely with management to develop concise objectives for the comment letter process. Welcome to Viewpoint, the new platform that replaces Inform. Select a section below and enter your search term, or to search all click Participants also indicated that the result of their activities can be expressed better than relying solely on the number of filings reviewed.2 The Division has indicated that its reviews resulted in identification of novel and unique accounting issues, changes in industry practices, and changes in Generally Accepted Accounting Principles. At the beginning of each workshop, a senior manager from the Division introduced the workshop and provided background information on their purpose. _______________________, STAY CONNECTED This document is an HTML formatted version of a printed document. This is a good time to review your policies and procedures to ensure the policies properly address the firms business activities and comply with the provisions of the recordkeeping rule. Review the firms practices, policies, and procedures to confirm that these address the enforcement priorities. This message will not be visible when page is We collected data primarily through six workshops (fifty-six staff or approximately 17% of Division personnel participated in the workshops). In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staffs comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area. }); Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. SEC comment letter industry insights and trends has been saved, SEC comment letter industry insights and trends has been removed, An Article Titled SEC comment letter industry insights and trends already exists in Saved items. The Division should ensure that the new EDGAR system includes improvements in document uploading capabilities and in identifying and tracking issuer's changes to filings, including in the financial statements. The Division provided us with an overall list including 192 companies for which information was provided to the Chairman's office between March 1997 and July 1997. Review ourcookie policyfor more information. Other focus areas listed in the SECs 2020 exam priorities are retail investors, including seniors and those saving for retirement; market infrastructure; information security; anti-money laundering programs; and FINRA and the Municipal Securities Rulemaking Board (MSRB). As a result of their review, they edit and add comments as appropriate. These participants described instances where they were embarrassed when an issuer contacted them about a comment they knew nothing about, because the reviewer inserted it without their knowledge. Some industries have no specialized guidance. STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. Select a section below and enter your search term, or to search all click Management Review - Review the examination report and draft comments for policy considerations (e.g., materiality, uniformity). Also, in a 1996 speech, senior Division management indicated that staff comments resulted in increased issuer attention in a number of disclosure areas, including accounting for disposal of assets as discontinued operations, presentation of overly broad geographic segments, and use of valuation allowances. Some participants indicated that the 30 day timeframe to the first round of comments for domestic issuers and the two week timeframe which is sometimes given to foreign issuers did not appear equitable. Pertains to 12-month periods ended July 31 OCIE also will continue to identify and examine SEC-registered firms engaged in the digital asset space, as well as RIAs that provide services to clients through automated investment tools and platforms (often referred to as robo-advisers). As registrants start to prepare for the 2022 annual reporting cycle, they may find it helpful to consider the following SEC priorities: For a comprehensive discussion of comment letter trends affecting SEC filers, see Deloittes Roadmap SEC Comment Letter Considerations, Including Industry Insights. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. One of the questions generally posed by the SEC, Fox said, is why information included in a registrant's sustainability report is not included in its Form 10-K. "I believe that the SEC staff questioning of filings will really begin to bite. Broader SEC priorities often The Office selected staff to participate in the workshops based on criteria developed by the Office (e.g., must have been on staff at least six months). To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. Another risk identified was associated with supplemental materials requested from issuers in response to comments. They demonstrated a high level of interest in the issues, knew when to push an issue and when not to, were articulate, and knew the technical literature. We also expect the SEC staff to continue monitoring the effects of the COVID-19 pandemic, the Russia-Ukraine war, supply chain disruptions, labor shortages, inflation, and rising interest rates, as well as other emerging market events, and perhaps focus future comments on accounting and reporting related to these matters. Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. Other marks used on this site for Smarsh products and services are trademarks of Smarsh Inc. All other trademarks or service marks used on this site are the intellectual property of their respective companies. In addition, they described a "collegial" atmosphere. Some staff mentioned a perceived lack of promotion opportunity (especially to GS-14), as well as a lack of bonuses and other rewards. Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. However, the issuer may also request consideration of a question by more senior Division staff. Despite the differences in the ratings, the participants believed that, taken as a whole, the Division was achieving its primary objective to improve disclosure to investors. Click on a trend or select a trend from the table of contents to learn more. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. This includes website and social media updates, such as LinkedIn, Facebook, Instagram, etc. These examinations will include RIAs advising retail investors as well as private funds. In general, the mentoring program, where senior staff accountants and examiners provide guidance to more inexperienced staff, was well received, although the quality of the individual mentoring experience depended on the quality of the mentor. Bloomberg. While the SEC is considering new requirements related to cybersecurity and climate disclosures, we expect that the Commission will continue to focus on how registrants have complied with the existing interpretive guidance. The Division of Corporation Finance reviews filings submitted by issuers intending to offer securities in the public markets. The Office keyed the anonymous assessment ratings of the workshop participants into Excel spreadsheets for analysis. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, Dina Bass. Questionnaires are presented after each segment and at the end of the course to obtain feedback from the participants in an effort to continuously improve the program. This audit report is based on these analyses. According to management, the benefit of improving reviews of a smaller number of filings would not justify the loss of reviewing a larger number of filings, albeit at only the current quality level. Please see www.pwc.com/structure for further details. Sample Letter to Companies Regarding Climate Participants also valued the extent to which they exercised judgment in their work. Regulators are focusing on both Reg BI implementation and technology, so make sure not to miss the mark. 17 The number of SEC comment . The Division periodically provided the Chairman of the SEC a list of companies with recently effective registrations. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. Most of the participants also indicated that they felt a strong sense of responsibility to the investing public and a desire to live up to the Division's, as well as the Commission's, expectations. It also highlights areas the SEC staff . Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. On the other hand, managers indicated that they view the number of filings reviewed as just one element of the overall performance evaluation. The Division has already gotten approval for Internet e-mail access. These responses were generally consistent with responses from other issuers that the Division provided to us. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. Registered representatives and customers use of an increasingly broad array of digital communication channels (e.g., texting, messaging, social media, collaboration applications) may pose challenges to a firms ability to comply with obligations related to the review and retention of such communications. 12-month period ended July 31. The SEC continues to prioritize reviews of larger companies, Staff participants expressed the desire for Internet e-mail access. In fact, some participants felt they were penalized for their lower production numbers resulting from processing larger, more complex filings than those used in setting the performance standards. Initially, the issuer communicates with the staff accountant and examiner. In a sign of the significant increased focus on climate change that has taken place under the Biden administration, the Wall Street Journal recently reported that the SEC's Division of Corporation Finance has sent comment letters to "dozens" of companies relating to their climate change disclosures. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. The SEC Division of Corporation Finance's filing review process is a key function utilized by the SEC staff to monitor the critical accounting and disclosure decisions applied by registrants. The staffs comments are in response to a companys disclosure and other public information and are based on the staffs understanding of that companys facts and circumstances.