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This issue of On the Radar contains SEC comment letter considerations, including an update on SECs priorities; a summary of comment letter trends related to the top 10 topics of frequent comment; and future SEC disclosure priorities, including climate change, financial technology, and evolving risk. The participants in the workshops expressed a desire for better communication of Division filing review policies from management to staff; more consistent treatment of filing issues; clearer definition of accountant, examiner, and reviewer responsibilities; and re-evaluation of the filing examination report format. Technology continues to be a key theme for the regulators. Resolve Comments - Gain issuer acceptance of comments through implementing amendments and futures comments. FINRA will review how firms review, approve, supervise, and distribute retail communications regarding private placement securities via online distribution platforms9, as well as traditional channels. 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. Addressing SEC comment letters can be an arduous process. The comparisons included analysis of management versus staff, actual achievement versus importance, and opportunities for improvement. reviews that are still ongoing or have recently been Sharing your preferences is optional, but it will help us personalize your site experience. The analysis herein summarizes the The Division works with the issuer to resolve the comments. Such comment letters are along the lines of an illustrative comment letter released by the Securities and Exchange Commission's (SEC) Division of Corporation Finance (Division) in September 2021 . Subscribe to receive Roadmap series publications via email. Welcome to Viewpoint, the new platform that replaces Inform. Scope And Objectives 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. You must consult an attorney for advice regarding your compliance with laws and regulations applicable to your business. The global business landscape has been changing rapidly, with the A key element to stay ahead of the curve is to develop a sound understanding of financial reporting trends. In response, management indicated that accounting and legal comments were, at one time, presented separately in the comment letters. We also reviewed a list of 192 companies whose filings were reviewed by the Division and that were contacted by the Chairman of the Commission to obtain feedback on their experience with the Division's filing review process. closed. we expect that the Commission will continue to focus on how registrants have Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. Responding to a comment letter? 2023 Smarsh Inc. Smarsh and the Smarsh logo are registered trademarks of Smarsh Inc. in the United States. Sign up to benefit from their deep understanding, tips and best practices regarding how your company can manage compliance risk while unlocking the business value of your communications data. SEC Comment Letter Trends. The Workshops 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. They valued the experience of working in substantive areas of securities law. The growing number and complexity of cybersecurity risks facing investment advisers (IAs) have triggered an increased interest in cyber risk management by the SEC, including a planned sweep of more than 50 registered IAs and broker-dealers. 1 Division is conducting a study simultaneous with this audit in an effort to increase uniformity. 17 The number of SEC comment . Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. Other industry groups have manuals containing guidance on issues specific to that industry. Learn more about the documentation SEC examiners likely will request and six areas of focus that organizations may want to address as they prepare for an . Please seewww.pwc.com/structurefor further details. Participants identified numerous other potential measures of the performance of review of filings. Review ourcookie policyfor more information. 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. Issuers who disagree with the views of the Division staff may contact successively higher levels in the Division, including the Director. They also felt that the training manual was improved. Division staff are now able to access the applicable guidance on-line. Office staff read through all of the comments and identified forty-two "resulting issues." Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. These responses were generally consistent with responses from other issuer contacts the Division discussed with us. Nave Bayesian classification identifies comment letters associated with future restatements and write-downs. 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 . Partner, Dept. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Do Not Sell or Share My Personal Information. 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 . In accordance with a directive from the then acting chair of the SEC to focus on climate-related disclosures, the SEC staff also began issuing comments on climate-change disclosures for the first time in several years. 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. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. In issuing comments to a company, the staff may request that a company provide additional supplemental information so the staff can better understand the companys disclosure, revise disclosure in a document on file with the SEC, provide additional disclosure in a document on file with the SEC, or provide additional or different disclosure in a future filing with the SEC. Please refer to your advisors for specific advice. Are you still working? Workshop discussions indicated that this supporting objective received low scores from participants because of concern with the Division's use of number of filings reviewed as its primary measure of program performance. By continuing to browse this site, you consent to the use of cookies. Communicate Comments Perhaps the most noteworthy finding was that combined management and staff scores indicated that communication of comments was the most important supporting objective and the supporting objective most successfully implemented. The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. The checklist is a response to a prior General Accounting Office recommendation that the Division document its review of filings. Participants were asked to describe risks in the examination report/draft comment process. We bring together extraordinary people, like you, to build a better working world. Both managers' and staff's scores indicated that the program performance measure objective was generally not achieved. with large accelerated filers representing 61 percent of the reviews with future area of focus for sec comment letters. Management indicated that the reviewer should give the review staff a copy of the comments that were issued. Are you still working? If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. 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). Background influence comment letter trends. 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. Executive Summary This message will not be visible when page is 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. The Division also uses the number of filings reviewed to justify its budget staffing levels. Use our Accounting Research Online website for financial reporting resources. It is for your own use only - do not redistribute. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. The electronic documents were then placed on the Division's file server. Includes only information related to reviews The review staff faxes comments to the issuer, generally with a follow-up copy by mail. These factors are crucial to an effective program. reviews were closed and posted to EDGAR after that edition They generally rated training on new releases as good. trend may have resulted from (1) the SECs targeted review of climate-change By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. Several participants suggested separating legal and accounting comments in the comment letter. Participants also valued the extent to which they exercised judgment in their work. Workshop participants agreed that the current process works well in resolving comments. Division of Forms 10-K, 10-K/A, 10-Q, and 10-Q/A (which are DTTL (also referred to as "Deloitte Global") does not provide services to clients. Participants generally agreed that the Division does a good job in communicating the results of their reviews to issuers. This means firms need to capture, archive, and supervise all written business communications. continue to be areas of focus for the SEC in 2011. Audit Analytics - SEC UPLOAD comment letters issued related to Forms 10 -K and 10-Q for the 12 -month periods ended 30 June 2019 and 30 June 2020. By Farzad F. Damania, Jennifer L. Howard and Ryan A. Lilley. Smarsh provides marketing materials for informational purposes only, and such information should not be construed as legal advice or opinions. of the Forms 10-K filed. Deloittes Roadmap. letters that the SEC issued to registrants) and does not These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. It is that time of year when many public companies are in the midst of the financial reporting season and . Recent SEC disclosure rules and interpretive In 2016, the percentage of comment letters issued to unique companies addressing a non-GAAP metric spiked to 35%, even as the total number of comment letters was declining, indicating non-GAAP was an area of focus for the SEC. This document is an HTML formatted version of a printed document. Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. priorities: For a comprehensive discussion of 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. If your firm and your associated persons agree to provide account monitoring, do you apply the best interest standard to both explicit and implicit hold recommendations? This also gave management a better understanding of the audit results, since they also analyzed the resulting issue worksheets. We also reviewed reports of 1933 Act registrations filed between October 1, 1996 and June 31, 1997 (1,228 registrations receiving full reviews and 567 registrations receiving a monitor for one or more specific items) to determine the timeliness of the initial filing review comments. Archives are available on the Deloitte Accounting Research Tool website.The Roadmap series contains comprehensive, easy-to-understand accounting guides on selected topics of broad interest to the financial reporting community. The staff should then review what was issued and obtain any necessary explanations. Participants indicated that improving these characteristics in the staff as a whole would also improve the comment letter process. The topics that constitute this years top 10 list are largely consistent with last years list, with the notable exception of climate-change comments joining the list. Please seewww.pwc.com/structurefor further details. After reviewing this information, the Office contacted an additional five companies, not on the Division's list, for their feedback on the Division's comment letter process. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. window.drift.api.startInteraction({ interactionId: 90922 }); The review also sought to provide management with staff views of the importance of the comment letter process objectives, and to recommend actions to increase the likelihood that their objectives would be achieved. year). Ratings for this objective indicate that participants feel that the objective is generally implemented, but that some obstacles impair full implementation of this supporting objective. 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. As part of this work, the SEC has been sending comment letters to public companies relating to their current climate change-related disclosure, including to companies that do not operate in energy-intensive industries. 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 . expanded disclosures related to emerging issues. Please see www.deloitte.com/about to learn more about our global network of member firms. OCIE prefaces the 2020 priorities by emphasizing the vital importance of compliance programs and compliance professionals. topics of focus in the coming year. This sample comment letter follows a recent increase in climate-related . The supporting objectives reflect activities that increase the chances of achieving the primary objective. How does the health equity ecosystem move from awareness to action? In turn, the Chairman contacted some of the companies for feedback on their experience with the Division's filing review process. Senior and middle managers and support offices such as Chief Counsel and Chief Accountant should participate in training. Having 2023 be a year of focus on electricity, water, drainage and community needs will ensure a strong year of accomplishment that will have a direct impact on our citizens. Audit Results Where possible, firms should block access to these email platforms through their networks. Some industries have no specialized guidance. Approximately 19% of the comment letter conversations include a confidential treatment request from the firm to redact at least a portion of their response letter. The objectives selected for evaluation were those that management thought were both important and for which evaluation data would be useful. COVID-19 pandemic, Russias invasion of Ukraine, supply-chain and labor issues, There is some evidence that companies are adhering to Regulation G and Regulation S-K after the updated C&DIs in 2016. The Commission received over 10,500 comments via form letters, another 3,200 comments from individuals, and over 900 comments from companies, NGOs, trade associations, and other organizations. 2019 - 2023 PwC. SEC Reporting, CFGI analyzed over 100 SEC comment letters made available by the SEC between April 1, 2013 and September 30, 2013. 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 staff has begun issuing comments related to climate change disclosures on both annual reports on Form 10-K and registration statements. Dawn Taylor welcomes Dr. Pamela Larde . We collected two sets of ratings (i.e., actual and importance) for each of the objectives. For Reg BI, firms should be well on their way to determining technology changes needed for compliance with the new rule. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. John is a senior consultation partner in the SEC services team in Deloitte & Touche LLPs National Office Accounting & Reporting Services group and is a member of the Consolidations team. All rights reserved. Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. Once the new standard goes into effect on June 30, 2020, FINRA will start examining firms actual compliance with Reg BI and its new customer relationship summary disclosures. that have been closed and subsequently posted to EDGAR. However, review of filings and comments by reviewers mitigate this risk. Do your firm and your associated persons apply a best interest standard to recommendations of types of accounts? Resolve Comments These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. years to come. Communicate Staff Findings These recommendations include updating review guidance as appropriate, designing and implementing formal training for reviewers, and improving the use of outcome-based program performance measures. While the SEC is May be different upon comparisons with the Our series on SEC comment letter trends continues with an area that often puts companies in the staff's spotlight: goodwill. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Company name must be at least two characters long. Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. Comment Letters. See how we connect, collaborate, and drive impact across various locations. comments on accounting and reporting related to these matters. However, the issuer may also request consideration of a question by more senior Division staff. Analytics. years, that trend reversed in review year 2022. It is for your own use only - do not redistribute. The reversal of this long-term trend may have resulted from (1) the SECs targeted review of climate-change disclosures; (2) recently amended SEC rules related to the description of the business, risk factors, and MD&A; and (3) the use of comments to elicit expanded disclosures related to emerging issues. Participants emphasized that these checklists and guides, while useful, are not a substitute for the ability to understand the transaction in the filing. Bell entered into a consent judgment to settle a civil lawsuit brought by the Securities and Exchange Commission . Participants indicated that these senior staff, referred to as "reviewers," are appointed based on their experience and background in the particular group. Discover how EY insights and services are helping to reframe the future of your industry. Each member firm is a separate legal entity. The topics that constitute this years top 10 list are largely Currently, the two-week timeframe is only provided in unusual cases. To stay logged in, change your functional cookie settings. expect these factors to affect the volume of comments next year as well. Communicate Comments - Develop and communicate (written and verbal) comments to the issuers or their representatives. in the 2022 edition of this publication: Was derived from data provided by Audit Our analysis of SEC comment letters issued in relation to Form 10-K and Form 10-Q filings . Do not delete! Responding to a comment letter? Sharing our expertise and perspective. 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). At EY, our purpose is building a better working world. As registrants start to prepare for the 2022 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. Under the Divisions filing review process, the The Division should review the current examination report "checklist" and eliminate any unnecessary or outdated review steps. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. 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 . The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, the SECs Division of Corporation Finance (the Division) continues to selectively review documents filed by registrants under the Securities Act of 1933 and the Securities Exchange Act of 1934. The regulators will continue to penalize firms and their employees for failing to meet regulatory requirements, including fines and other disciplinary actions. In this webcast, KPMG professionals discuss recent themes and trends in comment letter activity from the SEC and what areas of focus may be on the horizon. A version of a private sector, internal audit methodology (Control Self-Assessment or CSA) was adapted for this purpose. To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. Our Thinking. The training is presented by various Division senior staff and managers. 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. Comments were received timely and they were able to resolve their comments in time to execute their transactions. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 4. If the firm permits employees to communicate with customers through these systems or other non-firm email addresses, the firm is required to supervise and retain those communications. During the filing review, the accountant and examiner maintain contact with the issuer for clarifications and additional information relating to the disclosures in the filing. Broader SEC priorities often influence comment letter trends. Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. Welcome to the Deloitte Accounting Research Tool (DART). This brought all comments about a particular issue together in one document and facilitated discussion and evaluation of the issues. At the beginning of the audit, the Office audit staff worked closely with management to develop concise objectives for the comment letter process. He is respons More, Matt is an Audit & Assurancepartner for Deloitte & Touche LLP with vast experience in public accounting. Thursday, May 5, 2022. Keeping you up to date about SEC staff positions on reporting matters and proposed rulemaking that will affect registrants. Is related to reviews conducted by the the 10% increase in SEC staff comment letters in the year ended 30 June 2022. Exceptional organizations are led by a purpose. The focus of our analysis related to the Financial Statements, footnotes and related disclosures made in Management's Discussion & Analysis filed on Form 10-Q and Form 10-K of companies with a market capitalization between $100 million and $1 billion. Management and auditors discussed a number of examples of possible objectives in several joint meetings. The staff and management disagreed about whether the measurement of staff performance was achieving the Division's objectives. By continuing to browse this site, you consent to the use of cookies. The sample comments focus specifically on the impact that "[r]ecent bankruptcies and financial .
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