About 6.5% of the CTRs (1% of the overall sample) are related to Rule 406. 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. 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 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. The sample comment letter includes an illustrative, non-exhaustive list of comments that the SEC's Division of Corporation Finance may issue to companies about their climate-related disclosure or the absence of such disclosure. CEO survey: US CEOs brace for a recession of unknown magnitude. We collected two sets of ratings (i.e., actual and importance) for each of the objectives. Broader SEC priorities often 6LinkedIn 8 Email Updates, Appendix A - Control Self Assessment Methodology. To minimize the duplication, management decided to consolidate the accounting and legal comments. Very limited successful actions for implementation exist and obstacles are so prevalent that the unit is significantly impaired from implementing the supporting objective. Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. The Institute of Internal Auditors has promoted the concept internationally for the last several years with outstanding results reported. Includes only information related to reviews 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. Staff Performance Measures, Appendix A - Control Self Assessment Methodology reviews that are still ongoing or have recently been The Division also uses the number of filings reviewed to justify its budget staffing levels. 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 . Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. 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, management's discussion and analysis and revenue recognition. Thursday, May 5, 2022. Only three of the companies on the list raised issues concerning the Division's filing review process that resulted in a written response from the Division to the Chairman's office. 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. Generally, this task is delegated to senior accountants and examiners. Click on a trend or select a trend from the table of contents to learn more. Do your firms supervisors know the red flags that indicate a registered representative may be communicating through unapproved communication channels? The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. We use cookies to personalize content and to provide you with an improved user experience. This supplemental material is sometimes proprietary information that should be protected from public disclosure. 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. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. expect these factors to affect the volume of comments next year as well. Welcome to the Deloitte Accounting Research Tool (DART). Delivering insights to financial reporting professionals. To send a message to . The checklist is generally the same for all the industry groups. years to come. closed. 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. The staff and management disagreed about whether the measurement of staff performance was achieving the Division's objectives. Although not identified among the top 10 topics, COVID-19 and the Russia-Ukraine war have been the source of various SEC staff comments issued over the past year, many of which have focused on disclosures related to (1) risk factors, (2) MD&A, (3) early-warning disclosures related to impairments, and (4) adjustments to non-GAAP measures. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Partner, Dept. EY helps clients create long-term value for all stakeholders. Number of SEC comment letters by year . Review ourcookie policyfor more information. Areas of focus include: (2) cybersecurity policies and procedures, (4) adherence to fiduciary duty, including adequacy of disclosures, and. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or Firms cannot assume advisors arent using their personal emails to communicate with clients. For more information about our organization, please visit ey.com. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. 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. 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. The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. public offerings (IPOs) and special-purpose acquisition companies (SPACs). Information in this publication is based on A SPAC is a newly formed company that raises cash in an Nave Bayesian classification identifies comment letters associated with future restatements and write-downs. The questions gave structure to the discussions and facilitated the conduct of the workshops. Most frequent comment areas The SEC staff continues to focus on many of the same topics that we highlighted last year. 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. The "resulting issue" worksheets were given to management to review. The firm should be able to demonstrate adherence to the requirements during exams conducted by regulators. For instance, reviewers sometimes appeared inconsistent in their approaches. annual reporting cycle, they may find it helpful to consider the following SEC While it is difficult to predict what new 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. While the SEC is The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. Each success, obstacle, and recommendation was then coded and electronically transferred to a "resulting issue worksheet." They generally rated training on new releases as good. companies. 9:32 - How the focus of the current SEC administration impacts the type and volume of comment letters; 12:03 - The top non-GAAP comment letter trends and the importance of continuously reassessing these measures; 20:58-The interaction of current macroeconomic events and non-GAAP measures 27:34-What companies should focus on when looking ahead . 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. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. }); Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. Also, broader access to information on issues previously identified in a particular industry would also be helpful. All rights reserved. Under the Divisions filing review process, the Division performs some level of review of each registrant at least once every three years and may issue comments to such registrants. 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. Also, in a 1996 speech, senior Division management indicated that staff comments resulted in increased issuer attention in a number of disclosure areas, including accounting for disposal of assets as discontinued operations, presentation of overly broad geographic segments, and use of valuation allowances. proactive guidance as needed and to conduct ongoing reviews and oversight to protect Examples include: send to my personal email, respond to my gmail account, text me, lets take this offline. These common phrases are indicative of the risk of using unauthorized communication channels. Of these, 90% resulted in changes in income of 10% or more. Assistant Directors (ADs) review the most complex filing issues. In each episode of our 2022 SEC comment letter trends series, our guests bring you the latest themes in comment letters from the SEC's Division of Corporation Finance. 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. The SEC has recently started to release the comment letters and responses. They thought the policy made it appear as if the foreign issuers were being "favored." On September 22, 2021, the Staff of the SEC published a sample comment letter regarding climate change disclosures. By Farzad F. Damania, Jennifer L. Howard and Ryan A. Lilley. 2019 - 2023 PwC. 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. However, in certain industries, such as real estate, banking, and insurance, the checklist is augmented by specialized requirements for that industry called industry guides. 2023. 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. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. For instance, the training concerned with accounting proposals, while interesting, was not viewed as particularly useful. By continuing to browse this site, you consent to the use of cookies. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. The staff accountant performs the initial review of the financial statements in the filing for compliance with Generally Accepted Accounting Principles and other accounting rules and regulations. 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. Prior to joining Smarsh, Marianna worked for BNY Mellon and Invesco where she was an instrumental member on compliance teams.Marianna has also served as an adjunct professor at New York Career Institute where she taught Law Office Management and Real Estate Law. However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. 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. 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. The applicable policy is dated August 19, 1997. 12-month period ended July 31, 2022 (review year 2022 or the current Is based on SEC uploads (i.e., comment include registrant responses. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. jQuery('#chat').click(function(){ These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Addressing SEC comment letters can be an arduous process. A version of a private sector, internal audit methodology (Control Self-Assessment or CSA) was adapted for this purpose. Despite the differences in the ratings, the participants believed that, taken as a whole, the Division was achieving its primary objective to improve disclosure to investors. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. Fullwidth SCC. 4. Other industry groups have manuals containing guidance on issues specific to that industry. They met twice to discuss the issues and identify potential actions to enhance the comment letter process. The Division gave us information on issuers that were contacted by the Chairman within the past year for their views on the filing review process. 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. Another letter signed by over five hundred investors, foundations, companies, lawmakers, and NGOs, expresses support for SEC rulemaking by noting that "climate change poses a variety of material risks to companies of all sizes in all industries across our nation.". 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