They also indicated that the quality of the reviews sometimes suffered in the push to achieve numerical goals. Recent SEC disclosure rules and interpretive The Division should review the current examination report "checklist" and eliminate any unnecessary or outdated review steps. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. 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. 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). 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. However, despite these concerns, participants indicated they were proud to work for the Commission, in particular the Division. At EY, our purpose is building a better working world. On the Radar briefly summarizes emerging issues and trends related to the accounting and financial reporting topics addressed in our Roadmaps. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. 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. 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 . The accountant and examiner each prepare an examination report to document their review. Participants indicated that a more direct link between the training and the filings they actually review would make the training more effective. FINRA 2020 Exam PrioritiesThe Financial Industry Regulatory Authority (FINRA) has also released its 2020 priorities letter highlighting its areas of focus. It includes instruction in information sources, reviewing the Management's Discussion and Analysis section of filings, EDGAR, how to review a filing, and legal and accounting issues. We collected two sets of ratings (i.e., actual and importance) for each of the objectives. 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 . customer complaints mentioning such communications? 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. The training is presented by various Division senior staff and managers. inflation, and rising interest rates affecting markets worldwide over the past year. The Task Force's recommendations have thus far resulted in elimination of forty-six rules and six forms. All rights reserved. Fullwidth SCC. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. Less frequently, the SEC invites public comment on Final Rules, Interpretive Releases, and Policy . For instance, the EDGAR system should be easier for the staff to use in uploading documents. In all instances, the Division confirmed that the appropriate actions had been taken during the filing reviews. She is a frequent speaker at industry conferences and a contributor to various online publications. years and may issue comments to such registrants. 17 The number of SEC comment . After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. Heres how the numbers have Communicate Comments Social login not available on Microsoft Edge browser at this time. Pertains to 12-month periods ended July 31 Some participants indicated that the 30 day timeframe to the first round of comments for domestic issuers and the two week timeframe which is sometimes given to foreign issuers did not appear equitable. In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staffs comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area. (review years). This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. By continuing to browse this site, you consent to the use of cookies. ENDNOTES. This week, Heather Horn was joined by Valerie Wieman, a partner in PwC's National Office, to discuss a brand new comment letter tren we expect that the Commission will continue to focus on how registrants have 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.". Disclosure-event abnormal returns, revenue . EY | Assurance | Consulting | Strategy and Transactions | Tax. Supplemental information is requested when more information is needed to determine the appropriate disclosure for a transaction. Their comments and the results of meetings to discuss the worksheets preceded the preparation of the audit report. Workshop participants agreed that the current process works well in resolving comments. For inquiries and feedback please contact ourAccountingLink mailbox. expanded disclosures related to emerging issues. Staff Performance Measures, Appendix A - Control Self Assessment Methodology war, supply-chain disruptions, labor shortages, inflation, and rising interest In 2020, segment reporting moved from the fifth to the fourth most common topic of SEC comments, representing 14% of all comments. Participants were asked to describe risks in the examination report/draft comment process. They met twice to discuss the issues and identify potential actions to enhance the comment letter process. considering new requirements related to cybersecurity and climate disclosures, Broader SEC priorities often influence comment letter trends. Discover how EY insights and services are helping to reframe the future of your industry. (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 . OCIE notes that the positive impact of effective compliance is clear from the exams it has conducted.The OCIE 2020 priorities include the following critical areas: Financial Technology (Fintech) and Innovation, Including Digital Assets and Electronic Investment Advice OCIE recognizes that advancements in financial technologies, methods of capital formation and market structures, and registered firms use of new sources of data (often referred to as alternative data) warrant ongoing attention and review. The Division should remind issuers of the rules available to protect any proprietary supplemental information they provide to the Division and the procedures used to request the special handling. The analysis herein summarizes the comments the Division issued during its reviews of periodic filings of public companies. For instance, the training concerned with accounting proposals, while interesting, was not viewed as particularly useful. 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. As registrants start to prepare for the 2022 annual reporting cycle, they may find it helpful to consider the following SEC priorities: For a comprehensive discussion of comment letter trends affecting SEC filers, see Deloittes Roadmap SEC Comment Letter Considerations, Including Industry Insights. Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. Financial_services_DM. reviews that are still ongoing or have recently been Do your firm and your associated persons consider the express new elements of care, skill, and costs when making recommendations to retail customers? This brought all comments about a particular issue together in one document and facilitated discussion and evaluation of the issues. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Accordingly, the statistics presented may be affected by 2019 - 2023 PwC. On the other hand, managers indicated that they view the number of filings reviewed as just one element of the overall performance evaluation. addition, we expect the number of comments to grow next year because of a rise The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. Sometimes the review staff changes or the workload becomes such that no time is available for follow up on futures comments. We designed the workshops to be homogeneous with respect to management or professional staff to facilitate subsequent comparisons. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. of Professional Practice, KPMG US. decline in the number of reviews with comment letters over the past several future area of focus for sec comment letters. 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. Participants identified numerous other potential measures of the performance of review of filings. Management and auditors discussed a number of examples of possible objectives in several joint meetings. 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. The review staff faxes comments to the issuer, generally with a follow-up copy by mail. 1 The supporting objective is not important and should not be implemented at the Commission. Also prior to the workshops, the auditors developed sets of questions that related to each objective. 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. Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. 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. 12-month period ended July 31, 2022 (review year 2022 or the current In fact, some participants felt they were penalized for their lower production numbers resulting from processing larger, more complex filings than those used in setting the performance standards. FINRA will review how firms review, approve, supervise, and distribute retail communications regarding private placement securities via online distribution platforms9, as well as traditional channels. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. 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. 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. Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors . The Workshops Considerations, Including Industry Another risk identified was associated with supplemental materials requested from issuers in response to comments. 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