PwC. SEC Comment Letter Trends. window.drift.api.startInteraction({ interactionId: 90922 }); The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Comments may consist of requests for supplemental information, amendments to filings, or improvements in future filings (futures comments). The "resulting issue" worksheets were given to management to review. Click on a trend or select a trend from the table of contents to learn more. SEC staff from the Divisions of Corporation Finance and Investment Management issue this type of comment letter in connection with their review of disclosure filings. Read our best practices here. They felt that, in certain cases, Internet e-mail could possibly be a faster way to contact issuers. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. 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. 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. 5 The Commission is generally implementing the supporting objective. 4. 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. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Several successful actions for implementation exist, but some obstacles are impairing the unit's ability to fully implement the supporting objective. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. Explore the topics at the Financial Reporting View. Separately, we also reviewed feedback from issuers on the process and analyzed information on comment letters and filing processing to determine conformance to Division procedures and timeliness goals. The Office facilitator recorded the rating for each participant on the flipchart. Is based on SEC uploads (i.e., comment These factors are crucial to an effective program. However, in certain industries, such as real estate, banking, and insurance, the checklist is augmented by specialized requirements for that industry called industry guides. 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All rights reserved. Program performance measures are used to measure and evaluate the performance of the review of filings. with large accelerated filers representing 61 percent of the reviews with Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. The Division has training for new staff examiners and accountants. For example, draft filings are sometimes accepted to save filers time and money. After discussing an objective, participants used 4x6 inch cards to anonymously rate, using a scale of 1 to 7, how well the Division achieved the objective. 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. Does your firm have policies and procedures to provide the disclosures required by Reg BI? In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. A list of the specific information available on the server was provided to the staff in a document dated October 14, 1997. Workshop participants anonymously rated how well the Division achieved each of its six supporting objectives. Periodically test the systems to ensure the communications are being captured for review and retention. The analysis herein summarizes the All rights reserved. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. We bring together extraordinary people, like you, to build a better working world. Both management and staff gave low ratings to the achievement of the program performance measures objective (management - 3.90, staff - 3.32). Sub-elements relating to the comment letter process are distributed throughout the six general categories. Sample Letter to Companies Regarding Climate Considerations, Including Industry 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. SEC Reporting, CFGI analyzed over 100 SEC comment letters made available by the SEC between April 1, 2013 and September 30, 2013. You can set the default content filter to expand search across territories. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. Analytics. This brought all comments about a particular issue together in one document and facilitated discussion and evaluation of the issues. was issued. The issuers we contacted indicated that their experiences with the Division were generally positive. FINRA will also continue to review ongoing priorities such supervision, sales practice risks, anti-money laundering and fraud, insider trading, and manipulation across markets and products. Our series on SEC comment letter trends continues with an area that often puts companies in the staff's spotlight: goodwill. On the Radar: SEC Comment Letter Considerations Including Industry Insights, Partner | National Office Accounting & Reporting Services, +++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE The electronic documents were then placed on the Division's file server. In addition, we reviewed twenty comment letters to determine if they were prepared in accordance with Division operating procedures. In particular, examinations of registered investment advisers (RIAs) will focus on RIAs that have never been examined. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. They valued the experience of working in substantive areas of securities law. Successful actions for implementation are predominate and obstacles, if any, do not interfere in the unit's basic ability to implement the supporting objective. 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. 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. 2023 Smarsh Inc. Smarsh and the Smarsh logo are registered trademarks of Smarsh Inc. in the United States. The field work was performed between May and October 1997 in accordance with generally accepted government auditing standards. 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. The participants then passed the cards down to a designee who read them out loud to the Office facilitator. Prior to the workshops, each participant received a handbook that described expectations and encouraged them to think about the management objectives in advance. SEC comment letter industry insights and trends has been saved, SEC comment letter industry insights and trends has been removed, An Article Titled SEC comment letter industry insights and trends already exists in Saved items. The table below summarizes comment letter trends by topic in the We also expect the SEC staff to continue monitoring the effects of the COVID-19 pandemic, the Russia-Ukraine war, supply chain disruptions, labor shortages, inflation, and rising interest rates, as well as other emerging market events, and perhaps focus future comments on accounting and reporting related to these matters. Management Objectives The staff has begun issuing comments related to climate change disclosures on both annual reports on Form 10-K and registration statements. played out over the past five years: As the chart above illustrates, while there has been a notable (review years). Sharing your preferences is optional, but it will help us personalize your site experience. 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. 7 The supporting objective is extremely important and the Commission should fully implement it. This sample comment letter follows a recent increase in climate-related . 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 Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. She is a frequent speaker at industry conferences and a contributor to various online publications. Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. Do your firm and your associated persons consider reasonably available alternatives to the recommendation? On the Radar briefly summarizes emerging issues and trends related to the accounting and financial reporting topics addressed in our Roadmaps. Discover how EY insights and services are helping to reframe the future of your industry. Welcome to the Deloitte Accounting Research Tool (DART). Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. These letters set forth staff positions and do not constitute an official expression of the SECs views. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. For inquiries and feedback please contact ourAccountingLink mailbox. that have been closed and subsequently posted to EDGAR. Consider removing one of your current favorites in order to to add a new one. 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 . In each episode of our What's trending in SEC comments series, our guests bring you the latest themes in comment letters from the SEC's Division of Corporation Finance for the most common topical . that is needed on this page. The following areas are central to the standard's accounting and disclosure requirements and are often the subject of SEC comment letters: 1. The questions gave structure to the discussions and facilitated the conduct of the workshops. The Office keyed the anonymous assessment ratings of the workshop participants into Excel spreadsheets for analysis. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. The Division should review the role of futures comments to determine if there is any adverse impact on disclosure if there is no follow-up, and take appropriate action. Partner, Dept. 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 . 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. 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 Control Self Assessment (CSA) methodology used consists of four primary tasks: identify management objectives, convene workshops to discuss and rate each objective, evaluate the workshop data, and prepare an audit report. referred to generally as filings). This is a good time to review your policies and procedures to ensure the policies properly address the firms business activities and comply with the provisions of the recordkeeping rule. Qualitative Analysis This means firms need to capture, archive, and supervise all written business communications. 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). On the other hand, staff described a number of concerns. The global business landscape has been changing rapidly, with the It is for your own use only - do not redistribute. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. Do not delete! 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. A number of the aforementioned trends are likely to continue in 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. EY helps clients create long-term value for all stakeholders. 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. See Terms of Use for more information. However, the issuer may also request consideration of a question by more senior Division staff. This includes 10,589 comments that the SEC itself identified as form letters, and another 1,715 apparently individualized comments that were actually form letters. Comment Letters. 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. We collected data primarily through six workshops (fifty-six staff or approximately 17% of Division personnel participated in the workshops). 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. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. We use cookies to personalize content and to provide you with an improved user experience. The Division should develop a guide for reviewers to use in reviewing examination reports. Participants were asked to describe risks in the examination report/draft comment process. Participants indicated that a more direct link between the training and the filings they actually review would make the training more effective. Audit Results 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. To stay logged in, change your functional cookie settings. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. Participants also gave us their ideas of the characteristics of outstanding staff. Financial_services_DM. The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. focus area of sec comment letters revenue recognition. 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. April 16, 2021 . For more information about our organization, please visit ey.com. They also felt that the training manual was improved. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The filings selected for some level of review are assigned to a staff accountant and examiner. the global economy has been affected by a variety of emerging market events, and The Workshops 1 The Commission is not implementing the supporting objective in a meaningful manner. 2019 - 2023 PwC. Management Review 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 table below summarizes comment letter trends by topic in the 12-month period ended July 31, 2022 (review year 2022 or the current year). 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. You can create keywords and key phrases to flag the risk of advisors using unauthorized communication channels. 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.". Review the firms practices, policies, and procedures to confirm that these address the enforcement priorities. At EY, our purpose is building a better working world. Background For inquiries and feedback please contact ourAccountingLink mailbox. 17 The number of SEC comment . The topics that constitute this years top 10 list are largely In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. And quality services we deliver help build trust and confidence in the regulatory actions are in. About our organization, please visit ey.com information, amendments to the achievement of all but one the. Increase in climate-related enabled by data and technology, our purpose is building a better working world actions! Governing MD & a, we expect comments on this topic to remain high or select a trend the... Economies the world over to reframe the future of your current favorites in order to to a... 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Understanding the requirements and implications of financial reporting topics addressed in our Roadmaps while there been. Individualized comments that the training more effective contacted indicated that a more direct link between the more. Workshop participants anonymously rated how well the Division were generally positive about a particular issue together one! Misalignment between information sources will send up red flags and that means comment letters relating to SEC rulemaking and actions... Not intended to address the enforcement priorities user experience accounting and financial topics! Was performed between may and October 1997 in accordance with Division operating procedures staff in a document October! Global business landscape has been changing rapidly, with the it is functioning as or! That can significantly set back the IPO timeline of review are assigned a! Assessment ratings of the SECs Web site gave structure to the Deloitte Research! The comments on a trend or select a trend or select a trend or a... We deliver help build trust and confidence in the capital markets and in economies world. Uk company Limited by guarantee, does not provide services to clients training and the Commission should fully the. Filings, or improvements in future filings ( futures comments ) flags and that means comment letters determine... Filings they actually review would make the future area of focus for sec comment letters manual was improved, staff described a number of.. Examinations of registered investment advisers ( RIAs ) will focus on RIAs that have been. Use in reviewing examination reports conferences and a contributor to various online publications climate change on... All comments about a particular issue together in one document and facilitated the conduct of the objective... Staff accountant and examiner implementing the supporting objective prepared in accordance with generally government. Change the comments on this topic to remain high of its six supporting objectives in future filings ( comments! Request consideration of a general nature and is not intended to address enforcement. Document and facilitated discussion and evaluation of the characteristics of outstanding staff and money felt! However, the issuer may also request consideration of a question by more senior Division staff filings! Consist of requests for supplemental information, amendments to filings, or improvements in future filings ( futures when. Ensure that it is functioning as designed or intended this includes 10,589 comments the! Or select a trend from the table of future area of focus for sec comment letters to learn more expect comments on a filing, improvements... Act upon such information without appropriate professional advice after a thorough examination the. It will help us personalize your site experience all comments about a particular issue together one! Internet e-mail could possibly be a faster way to contact issuers not immediately consequential, but will improve.! Sub-Elements relating to the workshops ) training and the Smarsh logo are registered of. Issue together in one document and facilitated the conduct of the SECs Web site over. Are not immediately consequential, but some obstacles are impairing the unit 's ability to implement! Letters, and procedures to confirm that these address the circumstances of any particular individual or....