future area of focus for sec comment letters

The Division has already gotten approval for Internet e-mail access. 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. To minimize the duplication, management decided to consolidate the accounting and legal comments. In these unprecedented times, the SEC continues to provide registrants with If you require a printed version of this document contact the United States Securities and Exchange Commission, Office of Inspector General, Mail Stop 11-7, 450 Fifth Street N.W., Washington, D.C. 20549 or call (202) 942-4460. Participants identified numerous other potential measures of the performance of review of filings. However, review of filings and comments by reviewers mitigate this risk. Of these, 90% resulted in changes in income of 10% or more. (5) effectiveness of compliance programs. 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. ENDNOTES. Read our cookie policy located at the bottom of our site for more information. Unless noted otherwise, comment letter trend information You must consult an attorney for advice regarding your compliance with laws and regulations applicable to your business. 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. 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. Dina Bass. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. Less frequently, the SEC invites public comment on Final Rules, Interpretive Releases, and Policy . Securities Exchange Act of 1934. It is that time of year when many public companies are in the midst of the financial reporting season and . Responding to a comment letter? Is related to reviews conducted by the By continuing to browse this site, you consent to the use of cookies. EY helps clients create long-term value for all stakeholders. Participants felt that the EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system should be improved to make it more useful in filing reviews. 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. comments joining the list. International Leadership of Texas (ILTexas) is a free public charter school serving more than 22,000 K-12 students at 21 campuses in the Dallas-Fort Worth, Houston, Cleveland and College Station . Do your firm and your associated persons consider the express new elements of care, skill, and costs when making recommendations to retail customers? 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 mean (median) number of comment letter rounds is 1.5 (1.0). the SECs Division of Corporation Finance (the Division) continues to selectively Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. 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. Staff participants believed that the performance element for number of filings reviewed overshadowed the other performance rating criteria in their evaluations. You can set the default content filter to expand search across territories. Audit Analytics - SEC UPLOAD comment letters issued related to Forms 10 -K and 10-Q for the 12 -month periods ended 30 June 2019 and 30 June 2020. For instance, the EDGAR system should be easier for the staff to use in uploading documents. The evaluation process based on these standards is intended to improve individual and staff performance, including performance in the comment letter process area. The workshop participants discussed and anonymously rated each supporting objective. One of the most significant risks was missing a major issue during a filing review. 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. They also felt that the training manual was improved. 1 The Commission is not implementing the supporting objective in a meaningful manner. For more information about our organization, please visit ey.com. Review ourcookie policyfor more information. 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). During the filing review, the accountant and examiner maintain contact with the issuer for clarifications and additional information relating to the disclosures in the filing. The twenty comment letters we reviewed appeared to be prepared in accordance with Division operating procedures. Social login not available on Microsoft Edge browser at this time. review documents filed by registrants under the Securities Act of 1933 and the While it is difficult to predict what new comment letter trends 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. This box/component contains code 27 11. future area of focus for sec comment letterschucks and pearls meaning. The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. 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. How does the health equity ecosystem move from awareness to action? The staff should then review what was issued and obtain any necessary explanations. was issued. The questions gave structure to the discussions and facilitated the conduct of the workshops. Use our Accounting Research Online website for financial reporting resources. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. to continue monitoring the effects of the COVID-19 pandemic, the Russia-Ukraine Participants indicated that issuers sometimes do not appear aware of the protections available for the supplemental material submitted to the Division. Technology continues to be a key theme for the regulators. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. 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). Most frequent comment areas The SEC staff continues to focus on many of the same topics that we highlighted last year. This departure from the traditional audit report comment process provided input at an earlier stage in the writing process. Participants indicated that they tended to focus more on the activities by which they believed their performance was measured, and less on activities that were important but did not appear to them to affect their performance evaluations. 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. disclosures, (2) recently amended SEC rules related to the description of the Resolve Comments To stay logged in, change your functional cookie settings. Some industries have no specialized guidance. Information in this publication is based on The Office selected staff to participate in the workshops based on criteria developed by the Office (e.g., must have been on staff at least six months). Comment Letters. On the Radar briefly summarizes emerging issues and trends related to the accounting and financial reporting topics addressed in our Roadmaps. Please seewww.pwc.com/structurefor further details. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. 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. These examinations will include RIAs advising retail investors as well as private funds. 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. Are you still working? Over the past several years, Supplemental information is requested when more information is needed to determine the appropriate disclosure for a transaction. 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. Is based on SEC uploads (i.e., comment All rights reserved. Heres how the numbers have Please see www.pwc.com/structure for further details. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. continue to be areas of focus for the SEC in 2011. comments the Division issued during its reviews of periodic filings of public In 2020, segment reporting moved from the fifth to the fourth most common topic of SEC comments, representing 14% of all comments. All rights reserved. Workshop participants agreed that the current process works well in resolving comments. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. Office staff recorded all of the successes, obstacles, and recommendations ("comments") from the workshop participants on worksheets, and distributed them to the participants, who subsequently verified the worksheets. The SEC continues to prioritize reviews of larger companies, Variable Consideration (ASC 606-10-32-5 through 32-9) 35 threads, 8.1 percent. [Appendix B contains the rating criteria used by the participants.] It is for your own use only - do not redistribute. For instance, reviewers sometimes appeared inconsistent in their approaches. The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. These responses were generally consistent with responses from other issuers that the Division provided to us. Scope And Objectives To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. 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. If your firm and your associated persons agree to provide account monitoring, do you apply the best interest standard to both explicit and implicit hold recommendations? The staff examiner performs the initial review of the filing for compliance with applicable securities laws. This message will not be visible when page is 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. Each workshop took from 4 to 6 hours to complete. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. While the SEC is During each workshop, Office staff summarized participant discussions regarding successes, obstacles, and recommendations for each objective. The issuers we contacted indicated that their experiences with the Division were generally positive. Other industry groups have manuals containing guidance on issues specific to that industry. played out over the past five years: As the chart above illustrates, while there has been a notable with large accelerated filers representing 61 percent of the reviews with The staff has begun issuing comments related to climate change disclosures on both annual reports on Form 10-K and registration statements. At the beginning of each workshop, a senior manager from the Division introduced the workshop and provided background information on their purpose. 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. 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. Change Disclosures. expect these factors to affect the volume of comments next year as well. Participants in the workshop discussed some of their concerns regarding the review process. The global business landscape has been changing rapidly, with the 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. 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. The objectives selected for evaluation were those that management thought were both important and for which evaluation data would be useful. Broader SEC priorities often influence comment letter trends. Insights. Management revised their objectives further based on experience gained in the pilot workshop, which consisted of senior Division management. Prior research on SEC comment letters has almost exclusively focused on reviews of periodic filings, such as 10-Ks. Comments may consist of requests for supplemental information, amendments to filings, or improvements in future filings (futures comments). A key element to stay ahead of the curve is to develop a sound understanding of financial reporting trends. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. Follow our podcast. Do your firm and your associated persons consider reasonably available alternatives to the recommendation? 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. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. Management Review Explore the topics at the Financial Reporting View. The staffs comments are in response to a companys disclosure and other public information and are based on the staffs understanding of that companys facts and circumstances. The supporting objectives reflect activities that increase the chances of achieving the primary objective. "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 . More segment reporting comments in 2020. 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 Division should design and implement formal training for reviewers. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Each member firm is a separate legal entity. window.drift.on('ready', function () { 1 Division is conducting a study simultaneous with this audit in an effort to increase uniformity. Do not delete! Andrew Vollmer, Mercatus Center Policy Brief: Does the SEC Have Authority to Adopt Climate-Change Disclosure Rules?, at 13 (August 2021) (because "questions about the country's response to climate change" "are major and contentious policy areas," any SEC rules in this area "would be misusing general rulemaking powers that Congress provided" to the SEC); Letter to SEC . To send a message to . 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. A possible approach is to link staff performance evaluations more to the outcomes of filing reviews and impacts on the achievement of the Division's objective (improve disclosure to investors) and depend less on output measures. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. 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. 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. You may withdraw your consent at any time by emailing privacy@smarsh.com. The overall performance standards for professional staff include the staff performance measures for the comment letter process. Our series on SEC comment letter trends continues with an area that often puts companies in the staff's spotlight: goodwill. the SEC staff often issued comments on these topics to request expanded Program Performance Measures The training is presented by various Division senior staff and managers. Click on a trend or select a trend from the table of contents to learn more. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. 12-month period ended July 31. These audit steps are described in further detail in Appendix A. reviews were closed and posted to EDGAR after that edition 2 For example, the Division contends that as a result of staff comments in FY 1996, forty-one companies were required to restate their income. 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. Actual Effectiveness 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).

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