Participants emphasized that these checklists and guides, while useful, are not a substitute for the ability to understand the transaction in the filing. Keeping you up to date about SEC staff positions on reporting matters and proposed rulemaking that will affect registrants. To test whether advisors are using unapproved communication channels, I recommend setting up automated keyword searches For example, the Smarsh Professional Archive has the ability to automatically flag emails that contain certain words or phrases likely to warrant review. Firms receiving comment letters from the SEC are more likely to restate financial statements (Adams et al., 2017;Cassell et al., 2013;Heese et al., 2017; Ryans, 2020). CEO survey: US CEOs brace for a recession of unknown magnitude. business, risk factors, and MD&A, and (3) the use of comments to elicit To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. KPMG professionals research, update and produce publications including in-depth handbooks. that have been closed and subsequently posted to EDGAR. You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. Lack of flexibility in work hours concerned some staff. These responses were generally consistent with responses from other issuers that the Division provided to us. The Commission is currently seeking a contractor to modernize EDGAR. Social login not available on Microsoft Edge browser at this time. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. On December 8, 2022, the Staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission ("SEC") posted a sample comment letter with illustrative questions for reporting companies to consider in preparing their Securities Act and Exchange Act disclosure. Currently, the two-week timeframe is only provided in unusual cases. She earned her Juris Doctorate from Nova Southeastern University. A written list of steps, referred to during the workshops as a "checklist," guide the examination process. However, they also indicated that the training needed to focus more on the work that the staff actually performed. Select a section below and enter your search term, or to search all click The mean (median) number of comment letter rounds is 1.5 (1.0). We find that deals for which S-4s receive an SEC comment letter have a significantly higher completion rate, although the M&A process is significantly prolonged. Company name must be at least two characters long. 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. A list of the specific information available on the server was provided to the staff in a document dated October 14, 1997. For more information about our organization, please visit ey.com. 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. 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. One of the general categories include a sub-element regarding number of filings reviewed. Areas of focus include: (1) SEC registration eligibility, (2) cybersecurity policies and procedures, (3) marketing practices, (4) adherence to fiduciary duty, including adequacy of disclosures, and. 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. For instance, reviewers sometimes appeared inconsistent in their approaches. Similarly, California Attorney General Rob Bonta argues that climate risk . EY helps clients create long-term value for all stakeholders. Dawn Taylor welcomes Dr. Pamela Larde . We obtained and analyzed information concerning successes, obstacles, recommendations, and effectiveness ratings related to the primary objective and six supporting objectives identified by the Division for the comment letter process. Use our Accounting Research Online website for financial reporting resources. We collected data primarily through six workshops (fifty-six staff or approximately 17% of Division personnel participated in the workshops). Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. The checklist is a response to a prior General Accounting Office recommendation that the Division document its review of filings. Deloittes Roadmap. The topics of managements discussion and analysis (MD&A) and non-GAAP measures disclosure remain the two most significant sources of SEC staff comments since the staff remains laser focused on them. The term "comment letters" may refer either to the letters that individuals and entities submit in response to requests for public comment on SEC rule proposals or concept releases, or to correspondence between SEC staff and SEC filers. Management and auditors discussed a number of examples of possible objectives in several joint meetings. continue to be areas of focus for the SEC in 2011. remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. Each member firm is a separate legal entity. We use cookies to personalize content and to provide you with an improved user experience. 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. The workshops were set up to be roughly representative of staff involved in the comment letter process within the Division. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. 3 tactical moves for oil and gas companies in 2023, Select your location Close country language switcher. 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. These letters set forth staff positions and do not constitute an official expression of the SECs views. Follow along as we demonstrate how to use the site. 1 The Commission is not implementing the supporting objective in a meaningful manner. 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. An investor attention-based quantitative measure of importance, using EDGAR downloads, also predicts these outcomes. Review ourcookie policyfor more information. Management Review Few successful actions for implementation exist and many obstacles impair the unit's ability to implement the supporting objective . Our analysis of SEC comment letters issued in relation to Form 10-K and Form 10-Q filings . The objectives selected for evaluation were those that management thought were both important and for which evaluation data would be useful. Discover how EY insights and services are helping to reframe the future of your industry. Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. 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. From time to time, the SEC invites comments from the public on Proposed Rules, Concept Releases, Self-Regulatory Organization filings, Public Company Accounting Oversight Board Rulemaking, Rulemaking Petitions, and Other Releases. At EY, our purpose is building a better working world. 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 content is copyright protected. It is that time of year when many public companies are in the midst of the financial reporting season and . Comment Letters. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Outline whether employees have the ability to communicate via email through means other than their firm email address and through third-party communication systems such as Bloomberg and Reuters. billion or more of revenue, although these larger registrants represented only Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . Is based on SEC uploads (i.e., comment The supporting objectives reflect activities that increase the chances of achieving the primary objective. Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. For at least the past year, the Division received feedback indirectly from companies on their filing review experience. Explore the topics at the Financial Reporting View. Some industries have no specialized guidance. 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 information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. 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. The Task Force's recommendations have thus far resulted in elimination of forty-six rules and six forms. Addressing SEC comment letters can be an arduous process. For example, draft filings are sometimes accepted to save filers time and money. Municipal advisor examinations will include review of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients. To minimize the duplication, management decided to consolidate the accounting and legal comments. 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. The following areas are central to the standard's accounting and disclosure requirements and are often the subject of SEC comment letters: 1. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. CEO survey: US CEOs brace for a recession of unknown magnitude. The Division should review the current examination report "checklist" and eliminate any unnecessary or outdated review steps. Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors . No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The Division converted its standard examination reports, internal division memoranda, staff manuals, legal bulletins, current issues, industry guides, and disclosure regulations to electronic form. Also, in August 1995, the Chairman organized the Task Force on Disclosure Simplification to review and streamline regulations relating to forms and disclosure requirements. 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. It also highlights areas the SEC staff may . 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. review documents filed by registrants under the Securities Act of 1933 and the (5) effectiveness of compliance programs. Do Not Sell or Share My Personal Information. Technology continues to be a key theme for the regulators. 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. Number of SEC comment letters by year . Sometimes the review staff changes or the workload becomes such that no time is available for follow up on futures comments. 4. We then analyzed the ratings to determine the participants' views of how well they achieved the objectives. Do your firm and your associated persons consider the express new elements of care, skill, and costs when making recommendations to retail customers? The Division has already gotten approval for Internet e-mail access. Discover how EY insights and services are helping to reframe the future of your industry. Disclosure-event abnormal returns, revenue . Where possible, firms should block access to these email platforms through their networks. trend may have resulted from (1) the SECs targeted review of climate-change This training should result in a more consistent approach to review as well as improved communication. The table below summarizes comment letter trends by topic in the EY | Assurance | Consulting | Strategy and Transactions | Tax. Receive timely updates on accounting and financial reporting topics from KPMG. 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. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Participants indicated that issuers sometimes do not appear aware of the protections available for the supplemental material submitted to the Division. 17 The number of SEC comment . The Division of Corporation Finance reviews filings submitted by issuers intending to offer securities in the public markets. Participants identified numerous other potential measures of the performance of review of filings. 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). The rating scale used by the participants ranged from 7 (full implementation) to 1 (not being implemented in a meaningful manner). Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. It is for your own use only - do not redistribute. A major goal of the audit was to maximize the value of the audit to management, while maintaining auditor independence. (Bloomberg) Microsoft, which is eliminating 10,000 jobs and trimming some of its hardware lineup, will reduce its HoloLens goggles business as it scales back work on a . annual reporting cycle, they may find it helpful to consider the following SEC inflation, and rising interest rates affecting markets worldwide over the past year. considering new requirements related to cybersecurity and climate disclosures, Please refer to your advisors for specific advice. Comment Letters. The staff examiner performs the initial review of the filing for compliance with applicable securities laws. Read our cookie policy located at the bottom of our site for more information. Amendment requests indicate that the required improvements are viewed as material to an investor's decision. In addition, they described a "collegial" atmosphere. Resolve Comments 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. (review years). In many instances, they had already recognized the issues and taken corrective actions. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. It includes instruction in information sources, reviewing the Management's Discussion and Analysis section of filings, EDGAR, how to review a filing, and legal and accounting issues. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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. Tell us about yourself, and well be in touch right away. Recent SEC disclosure rules and interpretive years and may issue comments to such registrants. 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. Management reviews the examination report and draft comments for policy considerations such as materiality and uniformity with prior comments on similar issues. 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. 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. war, supply-chain disruptions, labor shortages, inflation, and rising interest 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. Sub-elements relating to the comment letter process are distributed throughout the six general categories. Program Performance Measures 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. Our SEC Reporting Update publication highlights key trends in SEC staff comment letters issued during the year ended 30 June 2020, including comments on accounting and disclosures related to the COVID-19 pandemic, the use of non-GAAP measures, managements discussion and analysis and revenue recognition. These factors are crucial to an effective program. Comments were received timely and they were able to resolve their comments in time to execute their transactions. We also reviewed reports of 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. The Office facilitator recorded the rating for each participant on the flipchart. You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. Accordingly, the statistics presented may be affected by SEC Comment Letter To send a message to . This departure from the traditional audit report comment process provided input at an earlier stage in the writing process. Under the Divisions filing review process, the The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. Participants were asked to describe risks in the examination report/draft comment process. 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. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. comments joining the list. 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. 2019 - 2023 PwC. In We also observed an increased number of comments related to acquisitions, mergers, and business combinations following a rise in merger and acquisition activity over the past several years. 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 . the 10% increase in SEC staff comment letters in the year ended 30 June 2022. Pertains to 12-month periods ended July 31 Most of the participants also agreed that, although the number of registrations filed and reviewed has increased, while staffing has remained relatively static, the quality of the reviews remains high. Several successful actions for implementation exist, but some obstacles are impairing the unit's ability to fully implement the supporting objective. To stay logged in, change your functional cookie settings. Division performs some level of review of each registrant at least once every three A number of the aforementioned trends are likely to continue in years to come. By Anonymous. jQuery('#chat').click(function(){ The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. complied with the existing interpretive guidance. 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. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or comment_letter_trends_DM. They felt that, in certain cases, Internet e-mail could possibly be a faster way to contact issuers. years, that trend reversed in review year 2022. we expect that the Commission will continue to focus on how registrants have The Division should design and implement formal training for reviewers. A number of the aforementioned trends are likely to continue in At the same time, participants felt they did not get appropriate credit for their other work such as monitors, confidential treatment applications, follow-up on previous comments, and no action letters. 2019 - 2023 PwC. The Division also uses the number of filings reviewed to justify its budget staffing levels. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Over the past several years, Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. The staff thought the objective was not being achieved; management rated it as generally being achieved although some obstacles impaired full implementation. acquisition of a private operating company.