future area of focus for sec comment letters

Under the Divisions filing review process, the The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. 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. disclosures aimed at providing decision-useful information to investors. Several successful actions for implementation exist, but some obstacles are impairing the unit's ability to fully implement the supporting objective. Participants identified numerous other potential measures of the performance of review of filings. Explore the topics at the Financial Reporting View. Management Objectives In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues. 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. 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. In all instances, the Division confirmed that the appropriate actions had been taken during the filing reviews. Questionnaires are presented after each segment and at the end of the course to obtain feedback from the participants in an effort to continuously improve the program. In response, management indicated that accounting and legal comments were, at one time, presented separately in the comment letters. 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. How do you move long-term value creation from ambition to action. 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. The checklist is a response to a prior General Accounting Office recommendation that the Division document its review of filings. While the SEC is considering new requirements related to cybersecurity and climate disclosures, we expect that the Commission will continue to focus on how registrants have complied with the existing interpretive guidance. 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. Executive Summary In other instances, issuers reduced their offering prices or withdrew their offers as a result of the Division's filing review and comment letter process. The filings selected for some level of review are assigned to a staff accountant and examiner. result in increased focus and scrutiny from the SEC staff. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, The topics that constitute this years top 10 list are largely PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Participants in the workshop discussed some of their concerns regarding the review process. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or 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. Participants indicated that improving these characteristics in the staff as a whole would also improve the comment letter process. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. Bloomberg. 12-month period ended July 31, 2022 (review year 2022 or the current 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. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. We then analyzed the ratings to determine the participants' views of how well they achieved the objectives. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. 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. 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.". SEC Comment Letter Trends. We collected data primarily through six workshops (fifty-six staff or approximately 17% of Division personnel participated in the workshops). These examinations will include RIAs advising retail investors as well as private funds. The review staff faxes comments to the issuer, generally with a follow-up copy by mail. Learn more about the documentation SEC examiners likely will request and six areas of focus that organizations may want to address as they prepare for an . The Institute of Internal Auditors has promoted the concept internationally for the last several years with outstanding results reported. 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. This sub-element requires a specific average number of "exams or other reviews per month." Proquest LLC. Comment Letters. Does your firm have a process in place to evaluate new tools available to your registered representatives to determine whether there are digital communications channels that should be captured, included in your firms routine electronic communications supervisory reviews, and stored in accordance with books and records requirements? 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 . The number of filings reviewed measures the amount of work performed by the review staff, but does not gauge the effect of the comments on filing disclosures as well as outcome-based measures. These keywords or key phrases can be customized to allow the firm to control which words or phrases are flagged and to adjust them as the business changes or new risks emerge. Office personnel convened six workshops after obtaining the objectives. The Division works with the issuer to resolve the comments. 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. As a result of their review, they edit and add comments as appropriate. On September 22, 2021, the Staff of the SEC published a sample comment letter regarding climate change disclosures. continue to be areas of focus for the SEC in 2011. played out over the past five years: As the chart above illustrates, while there has been a notable Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. Are you still working? During each workshop, Office staff summarized participant discussions regarding successes, obstacles, and recommendations for each objective. Dina Bass. To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. Resolve Comments - Gain issuer acceptance of comments through implementing amendments and futures comments. Are you still working? Dawn Taylor welcomes Dr. Pamela Larde . 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. Now that FINRA and the SEC have released their 2020 priorities letters, we can take a closer look at what firms should prepare for this year. This audit report is based on these analyses. KPMG does not provide legal advice. Heres how the numbers have played out over the past five years: As the chart above illustrates, while there has been a notable decline in the number of reviews with comment letters over the past several years, that trend reversed in review year 2022. The table below summarizes comment letter trends by topic in the of the Forms 10-K filed. The facilitator then repeated the procedure to rate how important (or desirable) the participants thought the objective was. Performance obligations: Nature of performance obligations - Descriptions of your contracts discuss several activities. comments on accounting and reporting related to these matters. 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. Anonymous. All rights reserved. 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. The SEC continues to prioritize reviews of larger companies, They generally rated training on new releases as good. customer complaints mentioning such communications? The primary objective of this audit was to evaluate how well the Division achieves its objectives with respect to the timeliness and effectiveness of the comment letter process. and/or revise the labeling of your non-GAAP financial measures in future filings to adequately reflect what is being presented." (SEC Comment Letter to GGP Inc., (March 30, 2017).) In addition, they described a "collegial" atmosphere. These potential measures include: the cost of the filing review function versus the dollar volume of the markets; the cost of the review as a percent of the filing fee; the dollar amount of changes in financial statements based on filing reviews; the number of material comments on filings with unqualified ("clean") audit opinions; the number of filings with comments implemented; the number of foreign companies that file with the SEC; and the value of fraudulent offerings stopped. Responding to a comment letter? We made several comparisons (e.g., how well ratings aligned). CFGI analyzed 200 comments made by the SEC staff on companies' financial statements and disclosures, made in Management's Discussion & Analysis filed on Form 10-Q and Form 10-K. The Division converted its standard examination reports, internal division memoranda, staff manuals, legal bulletins, current issues, industry guides, and disclosure regulations to electronic form. From time to time, the SEC invites comments from the public on Proposed Rules, Concept Releases, Self-Regulatory Organization filings, Public Company Accounting Oversight Board Rulemaking, Rulemaking Petitions, and Other Releases. Tell us about yourself, and well be in touch right away. Welcome to Viewpoint, the new platform that replaces Inform. Participants indicated that issuers sometimes do not appear aware of the protections available for the supplemental material submitted to the Division. (Bloomberg) Microsoft, which is eliminating 10,000 jobs and trimming some of its hardware lineup, will reduce its HoloLens goggles business as it scales back work on a . Although issuers do not always agree with the Division's proposed changes, they generally still make them. Archives are available on the Deloitte Accounting Research Tool website.The Roadmap series contains comprehensive, easy-to-understand accounting guides on selected topics of broad interest to the financial reporting community. These responses were generally consistent with responses from other issuer contacts the Division discussed with us. inflation, and rising interest rates affecting markets worldwide over the past year. Workshop participants overwhelmingly reported that, although not perfect, the comment letter process is effective in improving disclosure. 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. 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. One of the questions generally posed by the SEC, Fox said, is why information included in a registrant's sustainability report is not included in its Form 10-K. "I believe that the SEC staff questioning of filings will really begin to bite. We asked participants to review the worksheets relating to their workshop and verify their accuracy. the SECs Division of Corporation Finance (the Division) continues to selectively review documents filed by registrants under the Securities Act of 1933 and the 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 . was issued. 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. 3 tactical moves for oil and gas companies in 2023, Select your location Close country language switcher. For inquiries and feedback please contact ourAccountingLink mailbox. the global economy has been affected by a variety of emerging market events, and Other marks used on this site for Smarsh products and services are trademarks of Smarsh Inc. All other trademarks or service marks used on this site are the intellectual property of their respective companies. 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. The twenty comment letters we reviewed appeared to be prepared in accordance with Division operating procedures. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Heres how the numbers have in the 2022 edition of this publication: Was derived from data provided by Audit Executive Summary. This week, Heather Horn was joined by Valerie Wieman, a partner in PwC's National Office, to discuss a brand new comment letter tren This box/component contains code By Jeremy Simons. Transactional filing reviews, such as those related to mergers and acquisitions (M&A), are a priority of the SEC to which it dedicates significant resources. We also observed an increased number of comments related to acquisitions, mergers, and business combinations following a rise in merger and acquisition activity over the past several years. proactive guidance as needed and to conduct ongoing reviews and oversight to protect The workshop participants discussed and anonymously rated each supporting objective. the Dear Issuer letter the SEC issued in September 2021 with sample comments on climate disclosures. Issuers who disagree with the views of the Division staff may contact successively higher levels in the Division, including the Director. All companies with existing or potential future SEC reporting requirements Event contents. Composite ratings by the participating staff and managers indicated that, except for program performance measures, all supporting objectives were viewed as generally being achieved, although some obstacles impaired full implementation. Is based on SEC uploads (i.e., comment Social login not available on Microsoft Edge browser at this time. comment_letter_trends_DM. Division of Forms 10-K, 10-K/A, 10-Q, and 10-Q/A (which are The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. One of the general categories include a sub-element regarding number of filings reviewed. This content is copyright protected. Financial_services_DM. Company name must be at least two characters long. 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. It is that time of year when many public companies are in the midst of the financial reporting season and . In Our Thinking. All of the participants felt that their work made a difference and had an impact on the securities industry. The Task Force's recommendations have thus far resulted in elimination of forty-six rules and six forms. The mean (median) number of comment letter rounds is 1.5 (1.0). us SEC Comment Letter Trends. Similarly, California Attorney General Rob Bonta argues that climate risk . In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. 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. consistent with last years list, with the notable exception of climate-change (5) effectiveness of compliance programs. It is for your own use only - do not redistribute. The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. The Division has training for new staff examiners and accountants. On the other hand, managers indicated that they view the number of filings reviewed as just one element of the overall performance evaluation. The CSA methodology used in the audit 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. 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. Please see www.pwc.com/structure for further details. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, the SECs Division of Corporation Finance (the Division) continues to selectively review documents filed by registrants under the Securities Act of 1933 and the Securities Exchange Act of 1934. Municipal advisor examinations will include review of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients. Do your firm and your registered representatives guard against excessive trading, irrespective of whether the broker-dealer or associated person controls the account? Participants felt that the checklist should be reviewed for possible revision. Asking the better questions that unlock new answers to the working world's most complex issues. Some industries have no specialized guidance. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. You must consult an attorney for advice regarding your compliance with laws and regulations applicable to your business. The Workshops Recent SEC disclosure rules and interpretive However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. In the letters, the regulators highlighted technology-related topics while also focusing on existing priorities, reminding firms of the need to adopt comprehensive supervisory processes that will ensure compliance and exam preparedness. 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. Management revised their objectives further based on experience gained in the pilot workshop, which consisted of senior Division management. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. This supplemental material is sometimes proprietary information that should be protected from public disclosure. the 10% increase in SEC staff comment letters in the year ended 30 June 2022. 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. If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. 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 insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. 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. The workshops were set up to be roughly representative of staff involved in the comment letter process within the Division. Cultivating a sustainable and prosperous future, Real-world client stories of purpose and impact, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. 22 percent of the Forms 10-K filed. Participants agreed that the Division uses the number of filings reviewed as its primary performance measure. 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