future area of focus for sec comment letters

This supplemental material is sometimes proprietary information that should be protected from public disclosure. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. 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. We also expect the SEC staff This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Use our Accounting Research Online website for financial reporting resources. Data Evaluation Review ourcookie policyfor more information. Management revised their objectives further based on experience gained in the pilot workshop, which consisted of senior Division management. Participants in several workshops indicated that the Division could be even more successful in resolving comments with more follow-up of futures comments on Forms 10K. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. }); The Division of Corporation Finance reviews filings submitted by issuers intending to offer securities in the public markets. Asking the better questions that unlock new answers to the working world's most complex issues. For at least the past year, the Division received feedback indirectly from companies on their filing review experience. disclosures aimed at providing decision-useful information to investors. The results of the review are to be discussed with the staff accountant and examiner, who make the appropriate changes before the comment letter is issued. Please see www.pwc.com/structure for further details. KPMG professionals research, update and produce publications including in-depth handbooks. While the SEC is The reviewers review the examination report and draft comments prepared by the staff accountants and examiners to ensure that any material disclosure issues in the filing are identified. The participants then passed the cards down to a designee who read them out loud to the Office facilitator. Is based on SEC uploads (i.e., comment 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. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus . Executive Summary. The Division has training for new staff examiners and accountants. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. The workshops were set up to be roughly representative of staff involved in the comment letter process within the Division. PwC. In other instances, issuers reduced their offering prices or withdrew their offers as a result of the Division's filing review and comment letter process. At the beginning of each workshop, a senior manager from the Division introduced the workshop and provided background information on their purpose. Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. 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. 22 percent of the Forms 10-K filed. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. We designed the workshops to be homogeneous with respect to management or professional staff to facilitate subsequent comparisons. 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. 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. This training should result in a more consistent approach to review as well as improved communication. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. The Division should use more outcome-based program performance measures to gauge the success of the comment letter process. _______________________, STAY CONNECTED The primary objective developed by management was: Management also developed six supporting objectives, reflecting the activities that make achievement of the primary objective more likely. Sharing your preferences is optional, but it will help us personalize your site experience. Partner, Dept. At EY, our purpose is building a better working world. By continuing to browse this site, you consent to the use of cookies. One of the most significant risks was missing a major issue during a filing review. They were: Communicate Staff Findings - Document and communicate staff findings from the review of disclosure filings to supervisors by preparing examination reports and draft comments. 4. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. Bell entered into a consent judgment to settle a civil lawsuit brought by the Securities and Exchange Commission . SEC Comment Letter Trends. comment letters that were closed (i.e., the SEC issued a It also highlights areas the SEC staff may focus on next and summarizes best practices that may help companies respond to SEC staff comment letters. 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. 4. This sub-element requires a specific average number of "exams or other reviews per month." 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. 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. 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. 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 . Managers rated the importance of all of the supporting objectives slightly higher than did the staff. Participants indicated that these senior staff, referred to as "reviewers," are appointed based on their experience and background in the particular group. The topics that constitute this years top 10 list are largely Sharing our expertise and perspective. 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. Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . 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. of the Forms 10-K filed. Several successful actions for implementation exist, but some obstacles are impairing the unit's ability to fully implement the supporting objective. FINRA included a checklist of what examiners will be looking for after Reg BI goes into effect: Firms should consult this years priorities letters to better assess their compliance with relevant requirements and regulators expectations. 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. future area of focus for sec comment letters. 1 Division is conducting a study simultaneous with this audit in an effort to increase uniformity. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. Our review indicated that the Division issued comments within its 30 day timeframe on approximately 88% of the 1933 Act filings in our sample receiving full reviews and approximately 98% of the 1933 Act filings receiving a monitor for one or more specific items. The standards include six general categories. 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. We help fill the void in the literature by examining the influence of SEC comment letters on one type of transactional . Generally, this task is delegated to senior accountants and examiners. The SEC continues to prioritize reviews of larger companies, In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY | Assurance | Consulting | Strategy and Transactions | Tax. Welcome to Viewpoint, the new platform that replaces Inform. In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. 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. decline in the number of reviews with comment letters over the past several After each workshop, the auditors typed the summary successes, obstacles, and recommendations from the flipcharts to a formatted word-processing document (one page per objective). acquisition of a private operating company. These comments are largely focused on information related to climate change-related risks and opportunities which may be required in disclosures of a companys description of business, legal proceedings, risk factors, and managements discussion and analysis of financial condition and results of operations (refer to the Commissions. For more information about our organization, please visit ey.com. 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. 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). Considerations, Including Industry Few successful actions for implementation exist and many obstacles impair the unit's ability to implement the supporting objective . Asking the better questions that unlock new answers to the working world's most complex issues. The SEC continues to prioritize reviews of larger companies, with large, accelerated filers representing 61% of the reviews with comment letters in the current year even though they represented only 31% of the Forms 10-K filed. All rights reserved. The Division periodically provided the Chairman of the SEC a list of companies with recently effective registrations. The field work was performed between May and October 1997 in accordance with generally accepted government auditing standards. This message will not be visible when page is The global business landscape has been changing rapidly, with the COVID-19 pandemic, Russias invasion of Ukraine, supply chain and labor issues, inflation, and rising interest rates affecting markets worldwide over the past year. Securities Exchange Act of 1934. 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. 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. As a result of their review, they edit and add comments as appropriate. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. topics of focus in the coming year. By continuing to browse this site, you consent to the use of cookies. 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. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Management and staff also agreed that the Division is composed of, for the most part, hardworking, conscientious, highly qualified and motivated staff who are dedicated to improving disclosure to investors. Prior research on SEC comment letters has almost exclusively focused on reviews of periodic filings, such as 10-Ks. Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. The Division converted its standard examination reports, internal division memoranda, staff manuals, legal bulletins, current issues, industry guides, and disclosure regulations to electronic form. Other industry groups have manuals containing guidance on issues specific to that industry. PwC. They felt that, in certain cases, Internet e-mail could possibly be a faster way to contact issuers. 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. Assistant Directors (ADs) review the most complex filing issues. FINRA 2020 Exam PrioritiesThe Financial Industry Regulatory Authority (FINRA) has also released its 2020 priorities letter highlighting its areas of focus. ENDNOTES. Number of SEC comment letters by year . Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors OCIE will continue its risk-based examinations for each type of these registered entities. Communicate Staff Findings A number of the aforementioned trends are likely to continue in years to come. 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. All rights reserved. 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. 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, industry-specific SEC comment letter trends, {{favoriteList.country}} {{favoriteList.content}}. You may withdraw your consent at any time by emailing privacy@smarsh.com. Program Performance Measures we expect that the Commission will continue to focus on how registrants have that have been closed and subsequently posted to EDGAR. STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. Do your firm and your associated persons consider reasonably available alternatives to the recommendation? We asked participants to review the worksheets relating to their workshop and verify their accuracy. We also reviewed a list of 1933 Act registrations filed between October 1, 1996 and June 31, 1997 to determine the timeliness of filing review comments. Receive timely updates on accounting and financial reporting topics from KPMG. Participants emphasized that these checklists and guides, while useful, are not a substitute for the ability to understand the transaction in the filing. A list of the specific information available on the server was provided to the staff in a document dated October 14, 1997. 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. 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. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. We bring together extraordinary people, like you, to build a better working world. 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 second type of comment letters, between SEC staff and SEC filers, are contained in the SECs EDGAR database (see How to Search for EDGAR Correspondence). The SEC has recently started to release the comment letters and responses. 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. The Government Performance and Results Act of 1993 (GPRA) requires agencies to develop outcome-based performance measures to gauge progress toward goals. The composite ratings for how well the participants felt that the Division actually achieved its six supporting objectives were as follows: An important theme, expressed overwhelmingly by the participants, was the personal commitment of Division employees to maintain high standards of quality in filing reviews. Division staff are now able to access the applicable guidance on-line. * The SEC publicly releases comment letters no . Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. (5) effectiveness of compliance programs. Workshop participants agreed that the current process works well in resolving comments. closing letter to the registrant) within the corresponding The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. An outcome measure assesses the actual results, effects, or impact of a program activity compared to its intended purpose. The rating scale used by the participants ranged from 7 (full implementation) to 1 (not being implemented in a meaningful manner). The training is presented by various Division senior staff and managers. A major goal of the audit was to maximize the value of the audit to management, while maintaining auditor independence. However, some duplication of comments occurred in categories that included both accounting and legal issues, such as in the Management's Discussion and Analysis (MD&A) section of the filing. Sometimes the review staff changes or the workload becomes such that no time is available for follow up on futures comments. Management Objectives 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. Please enable JavaScript to view the site. The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. In response, management indicated that accounting and legal comments were, at one time, presented separately in the comment letters. Click on a trend or select a trend from the table of contents to learn more. Division management and the Office staff reviewed the forty-two resulting issue worksheets. The Institute of Internal Auditors has promoted the concept internationally for the last several years with outstanding results reported. with large accelerated filers representing 61 percent of the reviews with More segment reporting comments in 2020. Pertains to 12-month periods ended July 31 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. The staff should then review what was issued and obtain any necessary explanations. Each success, obstacle, and recommendation was then coded and electronically transferred to a "resulting issue worksheet." Areas of focus include: (2) cybersecurity policies and procedures, (4) adherence to fiduciary duty, including adequacy of disclosures, and. 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. 27 11. future area of focus for sec comment letterschucks and pearls meaning. Does your firm have policies and procedures to provide the disclosures required by Reg BI? Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. Read our best practices here: SEC comment letter trends for financial services companies. referred to generally as filings). Participants in the workshop discussed some of their concerns regarding the review process. FASB Accounting Standards Codification Manual, SEC Rules & Regulations (Title 17 Commodity and Securities Exchanges), Trust Services Principles, Criteria, and Illustrations, Principles and Criteria for XBRL-Formatted Information, Audit and Accounting Guides & Audit Risk Alerts, Other Publications, Press Releases, and Reports, Dbriefs Financial Reporting Presentations, Business Acquisitions SEC Reporting Considerations, Comparing IFRS Accounting Standards and U.S. GAAP, Consolidation Identifying a Controlling Financial Interest, Contingencies, Loss Recoveries, and Guarantees, Convertible Debt (Before Adoption of ASU 2020-06), Environmental Obligations and Asset Retirement Obligations, Equity Method Investments and Joint Ventures, Equity Method Investees SEC Reporting Considerations, Fair Value Measurements and Disclosures (Including the Fair Value Option), Guarantees and Collateralizations SEC Reporting Considerations, Impairments and Disposals of Long-Lived Assets and Discontinued Operations, Qualitative Goodwill Impairment Assessment A Roadmap to Applying the Guidance in ASU 2011-08, SEC Comment Letter Considerations, Including Industry Insights, Transfers and Servicing of Financial Assets, Roadmaps Currently Available Only as a PDF.
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