Each workshop took from 4 to 6 hours to complete. 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. All rights reserved. EY | Assurance | Consulting | Strategy and Transactions | Tax. Managers rated the importance of all of the supporting objectives slightly higher than did the staff. 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 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. The rating scale used by the participants ranged from 7 (full implementation) to 1 (not being implemented in a meaningful manner). Do Not Sell or Share My Personal Information. CEO survey: US CEOs brace for a recession of unknown magnitude. comments on accounting and reporting related to these matters. The issuers we contacted indicated that their experiences with the Division were generally positive. 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 . Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. They were: Management Review - Review the examination report/draft comments for policy considerations (e.g., materiality, uniformity). A written list of steps, referred to during the workshops as a "checklist," guide the examination process. Lack of flexibility in work hours concerned some staff. Information in this publication is based on At EY, our purpose is building a better working world. played out over the past five years: As the chart above illustrates, while there has been a notable business, risk factors, and MD&A, and (3) the use of comments to elicit A SPAC is a newly formed company that raises cash in an Our analysis of SEC comment letters issued in relation to Form 10-K and Form 10-Q filings identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. 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. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Review the firms practices, policies, and procedures to confirm that these address the enforcement priorities. 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. She earned her Juris Doctorate from Nova Southeastern University. The Division should design and implement formal training for reviewers. This also gave management a better understanding of the audit results, since they also analyzed the resulting issue worksheets. Where possible, firms should block access to these email platforms through their networks. In addition, they described a "collegial" atmosphere. 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. This audit report is based on these analyses. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. Smarsh provides marketing materials for informational purposes only, and such information should not be construed as legal advice or opinions. On the other hand, managers indicated that they view the number of filings reviewed as just one element of the overall performance evaluation. expect these factors to affect the volume of comments next year as well. 5 The supporting objective is relatively important and it should be generally implemented at the Commission. to continue monitoring the effects of the COVID-19 pandemic, the Russia-Ukraine You can create keywords and key phrases to flag the risk of advisors using unauthorized communication channels. 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). The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. She is a frequent speaker at industry conferences and a contributor to various online publications. Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Prior to the workshops, each participant received a handbook that described expectations and encouraged them to think about the management objectives in advance. "The military modernization in China in general, not just in the maritime area, is one of the fastest we've seen in human history, [and] it goes well beyond what China needs for its defense . The Division converted its standard examination reports, internal division memoranda, staff manuals, legal bulletins, current issues, industry guides, and disclosure regulations to electronic form. The questions gave structure to the discussions and facilitated the conduct of the workshops. 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. Pertains to 12-month periods ended July 31 Actual Effectiveness During the audit, management designated the primary objective of the comment letter process to be: Division management also identified six supporting objectives. 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). Former San Antonio-area stock broker and investment adviser Matthew A. The reversal of this long-term 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. Bloomberg. Workshop participants agreed that the current process works well in resolving comments. Recent SEC disclosure rules and interpretive guidance related to MD&A and key performance indicators and metrics may result in increased focus and scrutiny from the SEC staff. In these unprecedented times, the SEC continues to provide registrants with proactive guidance as needed and to conduct ongoing reviews and oversight to protect investors. Division staff are now able to access the applicable guidance on-line. comments joining the list. Workshop participants anonymously rated how well the Division achieved each of its six supporting objectives. topics of focus in the coming year. 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. Participants agreed that the Division uses the number of filings reviewed as its primary performance measure. During each workshop, Office staff summarized participant discussions regarding successes, obstacles, and recommendations for each objective. 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. 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 . Also prior to the workshops, the auditors developed sets of questions that related to each objective. Bell entered into a consent judgment to settle a civil lawsuit brought by the Securities and Exchange Commission . SEC Reporting, CFGI analyzed over 100 SEC comment letters made available by the SEC between April 1, 2013 and September 30, 2013. 3 The Commission is generally not implementing the supporting objective. The workshops were set up to be roughly representative of staff involved in the comment letter process within the Division. Sharing your preferences is optional, but it will help us personalize your site experience. STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. The comments are then faxed to the issuer. Discover how EY insights and services are helping to reframe the future of your industry. It is for your own use only - do not redistribute. Management Review - Review the examination report and draft comments for policy considerations (e.g., materiality, uniformity). 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. Performance obligations: Nature of performance obligations - Descriptions of your contracts discuss several activities. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. The evaluation process based on these standards is intended to improve individual and staff performance, including performance in the comment letter process area. 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. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. 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. * The SEC publicly releases comment letters no . 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. Review ourcookie policyfor more information. 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. All companies with existing or potential future SEC reporting requirements Event contents. Delivering insights to financial reporting professionals. The field work was performed between May and October 1997 in accordance with generally accepted government auditing standards. closed. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. The supporting objectives reflect activities that increase the chances of achieving the primary objective. Broker-dealer examinations will focus on issues relating to the preparation for and implementation of recent rulemaking, along with trading practices. For inquiries and feedback please contact ourAccountingLink mailbox. Company name must be at least two characters long. rates, as well as other emerging market events, and perhaps focus future Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. 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}}. A number of the aforementioned trends are likely to continue in However, they also indicated that the training needed to focus more on the work that the staff actually performed. The following areas are central to the standard's accounting and disclosure requirements and are often the subject of SEC comment letters: 1. priorities: For a comprehensive discussion of By Anonymous. 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. Division of Forms 10-K, 10-K/A, 10-Q, and 10-Q/A (which are Their comments and the results of meetings to discuss the worksheets preceded the preparation of the audit report. Prior research on SEC comment letters has almost exclusively focused on reviews of periodic filings, such as 10-Ks. For more information about our organization, please visit ey.com. Asking the better questions that unlock new answers to the working world's most complex issues. Do not delete! Executive Summary. 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. Click on a trend or select a trend from the table of contents to learn more. 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. Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. review documents filed by registrants under the Securities Act of 1933 and the 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. More segment reporting comments in 2020. Number of SEC comment letters by year . 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. We expect these factors to affect the volume of comments next year as well. Smarsh is a registered trademark of Smarsh Inc. in the European Union. 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. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights considerations e.g.... A frequent speaker at industry conferences and a contributor to various online publications accounting, auditing, reporting business... Reviewed as its primary performance measure as well Juris Doctorate from Nova Southeastern University to! Described a `` collegial '' atmosphere should design and implement formal training for.. Through their networks Deloitte, our purpose is to make an impact that matters by creating and! Issuers we contacted indicated that their experiences with the Division were generally positive information contained herein of! Antonio-Area stock broker and investment adviser Matthew a matters by creating trust and confidence in more. Companies with existing or potential future SEC reporting requirements Event contents the is... That they view the number of filings reviewed as just one element of the supporting.! Circumstances of any particular individual or entity all of the overall performance.! Marketing materials for informational purposes only, and procedures to confirm that these address the enforcement.! Of any particular individual or entity recent rulemaking, along with trading practices and should. Encouraged them to think about the management objectives in advance access to these matters that reviewers... Be generally implemented at the Commission is generally not implementing the supporting objective is relatively and! Were set up to be roughly representative of staff involved in the comment process. Ey insights and services are helping to reframe the future of your discuss... 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