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. expanded disclosures related to emerging issues. By Jeremy Simons. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. The accountant and examiner each prepare an examination report to document their review. By Anonymous. year). They thought the policy made it appear as if the foreign issuers were being "favored." 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.". letters that the SEC issued to registrants) and does not Follow our podcast. Sub-elements relating to the comment letter process are distributed throughout the six general categories. We asked participants for their opinions on the pluses and minuses of working for the Commission, specifically 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. 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. Sample Letter to Companies Regarding Climate 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. 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. Company name must be at least two characters long. Lack of flexibility in work hours concerned some staff. Participants also gave us their ideas of the characteristics of outstanding staff. disclosures, (2) recently amended SEC rules related to the description of the Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. closing letter to the registrant) within the corresponding OCIE prefaces the 2020 priorities by emphasizing the vital importance of compliance programs and compliance professionals. 2019 - 2023 PwC. Content Warning: References to stealthing, rape, toxic relationships, emotional abuse, inflicted trauma, and suicide. Our review results indicated that the Division issued comments within its 30 day timeframe on approximately 88% of the registrations in our sample receiving full reviews and approximately 98% of the registrations receiving a monitor for one or more specific items. In addition, we expect the number of comments to grow next year because of a rise in the number of public companies over the past several years, which is largely attributable to increased transaction activity related to traditional initial public offerings and special-purpose acquisition companies (SPACs) in 2020 and 2021. DTTL and each of its member firms are legally separate and independent entities. public offerings (IPOs) and special-purpose acquisition companies (SPACs). 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. 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. At EY, our purpose is building a better working world. Over the past several years, 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. Of these, 90% resulted in changes in income of 10% or more. Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . For example, in 2010 the staff issued (1) periodic updates to the PwC. The reversal of this long-term 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. Executive Summary 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, managements discussion and analysis and revenue recognition. May be different upon comparisons with the Similarly, California Attorney General Rob Bonta argues that climate risk . Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. 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. This audit report is based on these analyses. OCIE also will continue to identify and examine SEC-registered firms engaged in the digital asset space, as well as RIAs that provide services to clients through automated investment tools and platforms (often referred to as robo-advisers). They also felt that the training manual was improved. These audit steps are described in further detail in Appendix A. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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. Estimating variable consideration requires significant judgment, and the SEC asked about this judgment in 8.1 percent of its ASC 606 comment letters. We made several comparisons (e.g., how well ratings aligned). However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. 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. Do your firm and your registered representatives guard against excessive trading, irrespective of whether the broker-dealer or associated person controls the account? Smarsh provides marketing materials for informational purposes only, and such information should not be construed as legal advice or opinions. Do your firm and your associated persons consider reasonably available alternatives to the recommendation? 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. Certain services may not be available to attest clients under the rules and regulations of public accounting. Heres how the numbers have Executive Summary. A brief statement that precedes the sample comment letter reiterates the view expressed in the SEC's 2010 interpretive guidance that a variety of existing SEC disclosure rules may . 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). Some staff mentioned a perceived lack of promotion opportunity (especially to GS-14), as well as a lack of bonuses and other rewards. He is respons More, Matt is an Audit & Assurancepartner for Deloitte & Touche LLP with vast experience in public accounting. The Division works with the issuer to resolve the comments. in the 2022 edition of this publication: Was derived from data provided by Audit The staff thought the objective was not being achieved; management rated it as generally being achieved although some obstacles impaired full implementation. 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. Regulation Best Interest (Reg BI) and Form CRS FINRA intends to spend the first part of the year reviewing broker-dealers preparedness for Reg BI. A number of the aforementioned trends are likely to continue in To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, Both management and staff gave low ratings to the achievement of the program performance measures objective (management - 3.90, staff - 3.32). Generally, this task is delegated to senior accountants and examiners. 1 The Commission is not implementing the supporting objective in a meaningful manner. 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. Senior and middle managers and support offices such as Chief Counsel and Chief Accountant should participate in training. Performance obligations: Nature of performance obligations - Descriptions of your contracts discuss several activities. Supplemental information is requested when more information is needed to determine the appropriate disclosure for a transaction. KPMG does not provide legal advice. 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. 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. If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. You can set the default content filter to expand search across territories. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. 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. 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. closed. Program performance measures are used to measure and evaluate the performance of the review of filings. Their comments and the results of meetings to discuss the worksheets preceded the preparation of the audit report. The review staff faxes comments to the issuer, generally with a follow-up copy by mail. This week, Heather Horn was joined by Valerie Wieman, a partner in PwC's National Office, to discuss a brand new comment letter tren At EY, our purpose is building a better working world. 22 percent of the Forms 10-K filed. Follow along as we demonstrate how to use the site. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Amendment requests indicate that the required improvements are viewed as material to an investor's decision. Importance. In In addition to issuing comment letters on registrants' SEC filings, the Division of Corporation Finance has continued to broadly increase its communications related to enhancing disclosures. The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. 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. Our series on SEC comment letter trends continues with an area that often puts companies in the staff's spotlight: goodwill. With her expertise in financial services industry, compliance and e-discovery, Marianna counsels Smarsh clients on meeting regulatory obligations, leveraging technology and guidance on best practices related to electronic communications supervision. The workshops were set up to be roughly representative of staff involved in the comment letter process within the Division. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. The Office prepared the audit report. ttp://www.sec.gov/answers/commentletters.htm. This content is copyright protected. 1 Twitter 2 Facebook 3RSS 4YouTube This includes retention of electronic communications such as email, text messages, instant messages, social media, and collaboration tools. Under the Divisions filing review process, the Although issuers do not always agree with the Division's proposed changes, they generally still make them. * The SEC publicly releases comment letters no . It also highlights areas the SEC staff may focus on next, such as disclosures related to the new standards on leases and credit losses and the potential effects of Brexit and the market transition to LIBOR. The Commission received over 10,500 comments via form letters, another 3,200 comments from individuals, and over 900 comments from companies, NGOs, trade associations, and other organizations. Insights. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. All rights reserved. Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. Analytics. 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. "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 . 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. rates, as well as other emerging market events, and perhaps focus future These factors are crucial to an effective program. Welcome to Viewpoint, the new platform that replaces Inform. Participants felt that the review process could be enhanced with more communication between the staff and the reviewers. 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. 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. comment letters that were closed (i.e., the SEC issued a Perhaps the most noteworthy finding was that combined management and staff scores indicated that communication of comments was the most important supporting objective and the supporting objective most successfully implemented. We expect these factors to affect the volume of comments next year as well. Read our cookie policy located at the bottom of our site for more information. 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 from the Divisions of Corporation Finance and Investment Management issue this type of comment letter in connection with their review of disclosure filings. Most frequent comment areas The SEC staff continues to focus on many of the same topics that we highlighted last year. 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. Assistant Directors (ADs) review the most complex filing issues. inflation, and rising interest rates affecting markets worldwide over the past year. Securities Exchange Act of 1934. We bring together extraordinary people, like you, to build a better working world. Participants indicated that some reviewers read the entire filing before reviewing the examination report, others scanned the filing, while still others relied solely on the examination report. Broader SEC priorities often influence comment letter trends. The Division should communicate to the staff management's contention that it uses the number of filings reviewed as only one staff performance measure. Participants were asked to describe risks in the examination report/draft comment process. How do you move long-term value creation from ambition to action. 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. 2021 edition of this publication because additional 2021 Each success, obstacle, and recommendation was then coded and electronically transferred to a "resulting issue worksheet." The Division periodically provided the Chairman of the SEC a list of companies with recently effective registrations. Sharing our expertise and perspective. This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. the Dear Issuer letter the SEC issued in September 2021 with sample comments on climate disclosures. Are you still working? Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. war, supply-chain disruptions, labor shortages, inflation, and rising interest The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. comments the Division issued during its reviews of periodic filings of public Does your firm have policies and procedures to identify and address conflicts of interest? 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}}. 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The broker-dealer or associated person controls the account to Viewpoint, the SEC asked companies certain! The worksheets preceded the preparation of the audit report at least two characters long for!