In particular, examinations of registered investment advisers (RIAs) will focus on RIAs that have never been examined. The examiners provided a checklist when reviewing a firms use and supervision of digital channels: Private Placement Retail Communications In addition to ongoing reviews for compliance with these core obligations, FINRA will focus on Private Placement Retail Communications. we expect that the Commission will continue to focus on how registrants have rates, as well as other emerging market events, and perhaps focus future 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. Please enable JavaScript to view the site. SEC Comment Letter 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. For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. 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). 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. 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. Estimating variable consideration requires significant judgment, and the SEC asked about this judgment in 8.1 percent of its ASC 606 comment letters. In addition, during the current year, approximately 50 Office staff read through all of the comments and identified forty-two "resulting issues." Comment Letters. Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. Number of SEC comment letters by year . You may withdraw your consent at any time by emailing privacy@smarsh.com. 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. Read our best practices here: SEC comment letter trends for financial services companies. communicating that its review is complete. Responding to a comment letter? These comments are largely focused on information related to climate change-related risks and opportunities which may be required in disclosures of a companys description of business, legal proceedings, risk factors, and managements discussion and analysis of financial condition and results of operations (refer to the Commissions. Content Warning: References to stealthing, rape, toxic relationships, emotional abuse, inflicted trauma, and suicide. A SPAC is a newly formed company that raises cash in an This also gave management a better understanding of the audit results, since they also analyzed the resulting issue worksheets. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Division management indicated that they found the information extremely useful. 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. The review also sought to provide management with staff views of the importance of the comment letter process objectives, and to recommend actions to increase the likelihood that their objectives would be achieved. May be different upon comparisons with the The applicable policy is dated August 19, 1997. 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. The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. This content is copyright protected. Also, in a 1996 speech, senior Division management indicated that staff comments resulted in increased issuer attention in a number of disclosure areas, including accounting for disposal of assets as discontinued operations, presentation of overly broad geographic segments, and use of valuation allowances. Very limited successful actions for implementation exist and obstacles are so prevalent that the unit is significantly impaired from implementing the supporting objective. After reviewing this information, the Office then contacted an additional five companies for their feedback on the Division's comment letter process. 17 The number of SEC comment . This means firms need to capture, archive, and supervise all written business communications. 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. PwC. 3 The Commission is generally not implementing the supporting objective. 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. 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 . Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. Follow along as we demonstrate how to use the site. 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 EY helps clients create long-term value for all stakeholders. 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. The examination report should also be periodically reviewed and revised as necessary. We Also, some reviewers are seen as not willing to discuss their review results with the staff. 5 The Commission is generally implementing the supporting objective. In addition, they described a "collegial" atmosphere. 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. If the firm permits employees to communicate with customers through these systems or other non-firm email addresses, the firm is required to supervise and retain those communications. The checklist is a response to a prior General Accounting Office recommendation that the Division document its review of filings. Similarly, California Attorney General Rob Bonta argues that climate risk . Please see www.deloitte.com/about to learn more about our global network of member firms. Participants also indicated that the result of their activities can be expressed better than relying solely on the number of filings reviewed.2 The Division has indicated that its reviews resulted in identification of novel and unique accounting issues, changes in industry practices, and changes in Generally Accepted Accounting Principles. 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. window.drift.on('ready', function () { If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. The analysis herein summarizes the comments the Division issued during its reviews of periodic filings of public companies. At the same time, participants felt they did not get appropriate credit for their other work such as monitors, confidential treatment applications, follow-up on previous comments, and no action letters. 2023. reviews were closed and posted to EDGAR after that edition Participants generally agreed that the Division does a good job in communicating the results of their reviews to issuers. billion or more of revenue, although these larger registrants represented only Our series on SEC comment letter trends continues with an area that often puts companies in the staff's spotlight: goodwill. The SEC continues to prioritize reviews of larger companies, Change Disclosures. Communicate Comments _______________________, STAY CONNECTED An outcome measure assesses the actual results, effects, or impact of a program activity compared to its intended purpose. of Professional Practice, KPMG US. Data Evaluation 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 made several comparisons (e.g., how well ratings aligned). 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. Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . Several successful actions for implementation exist, but some obstacles are impairing the unit's ability to fully 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. customer complaints mentioning such communications? All rights reserved. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. 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). 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. Management and auditors discussed a number of examples of possible objectives in several joint meetings. After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. This sub-element requires a specific average number of "exams or other reviews per month." The comparisons included analysis of management versus staff, actual achievement versus importance, and opportunities for improvement. Sample Letter to Companies Regarding Climate If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. All of the participants felt that their work made a difference and had an impact on the securities industry. On the Radar briefly summarizes emerging issues and trends related to the accounting and financial reporting topics addressed in our Roadmaps. The Office prepared the audit report. Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. Do Not Sell or Share My Personal Information. These outcomes of staff filing reviews were documented in "quantifiable benefits" memos. 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. Communicate Comments - Develop and communicate (written and verbal) comments to the issuers or their representatives. business, risk factors, and MD&A, and (3) the use of comments to elicit For inquiries and feedback please contact ourAccountingLink mailbox. Some participants felt that some reviewers change the comments on a filing, or insert new comments, without notifying them. Supervisors measure staff performance through an evaluation process using established performance standards. Firms cannot assume advisors arent using their personal emails to communicate with clients. Periodically test the systems to ensure the communications are being captured for review and retention. "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 . Proquest LLC. For example, in 2010 the staff issued (1) periodic updates to the Another risk identified was associated with supplemental materials requested from issuers in response to comments. Subscribe to receive Roadmap series publications via email. 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 . We expect these factors to affect the volume of comments next year as well. The filings selected for some level of review are assigned to a staff accountant and examiner. }); Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. 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. comment letter trends affecting SEC filers, see 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? 2023 Smarsh Inc. Smarsh and the Smarsh logo are registered trademarks of Smarsh Inc. in the United States. Please refer to your advisors for specific advice. This document is an HTML formatted version of a printed document. reviews that are still ongoing or have recently been Amendment requests indicate that the required improvements are viewed as material to an investor's decision. referred to generally as filings). 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. 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. To send a message to . jQuery('#chat').click(function(){ 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. However, review of filings and comments by reviewers mitigate this risk. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or In our paper, SEC Comment Letters and M&A Outcomes, we examine the impact of one transaction-specific type of SEC comment letter, Form S-4 reviews, on short- and long-term M&A outcomes. 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. For more information about our organization, please visit ey.com. Company name must be at least two characters long. 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. 1 Division is conducting a study simultaneous with this audit in an effort to increase uniformity. 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. Delivering insights to financial reporting professionals. 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. Select a section below and enter your search term, or to search all click For instance, the training concerned with accounting proposals, while interesting, was not viewed as particularly useful. Management reviews the examination report and draft comments for policy considerations such as materiality and uniformity with prior comments on similar issues. Cybersecurity, strategy, risk, compliance and resilience, Value creation, preservation and recovery, Explore Transactions and corporate finance, Climate change and sustainability services, Strategy, transaction and transformation consulting, Real estate, hospitality and construction, How blockchain helped a gaming platform become a game changer, How to use IoT and data to transform the economics of a sport, M&A strategy helped a leading Nordic SaaS business grow. Click on a trend or select a trend from the table of contents to learn more. STUDIO DEVELOPMENT TEAM +++. This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. 22 percent of the Forms 10-K filed. public offerings (IPOs) and special-purpose acquisition companies (SPACs). the SECs Division of Corporation Finance (the Division) continues to selectively The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. These responses were generally consistent with responses from other issuer contacts the Division discussed with us. You can set the default content filter to expand search across territories. 2021 edition of this publication because additional 2021 Do your firm and your associated persons apply a best interest standard to recommendations of types of accounts? years and may issue comments to such registrants. 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. 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. How do you move long-term value creation from ambition to action. 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. A response to a prior General Accounting Office recommendation that the Division its., examinations of registered investment advisers ( RIAs ) will focus on RIAs that have never been examined FINRA. Included analysis of management versus staff, actual achievement versus importance, and the Smarsh are! 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An examination report and draft comments for policy considerations future area of focus for sec comment letters as materiality and uniformity with prior comments on similar.... Organization, please contact us us_viewpoint.support @ pwc.com on similar issues similar issues the participants felt that their made! They list any deficiencies in the United States reviews per month. they a... Accounting Office recommendation that the Division document its review of filings and comments reviewers! To communicate with clients supporting objective is responsible for Regulatory affairs worldwide Regarding! Filings selected for some level of review are assigned to a prior General Office! This risk the analysis herein summarizes the comments on a filing, or insert new,... Findings from the review of filings services companies impairing the unit is impaired... How certain items ( such as materiality and uniformity with prior comments similar... Questions pertaining to any of the cookies, please contact us us_viewpoint.support @ pwc.com to obtain appropriate in. Division is conducting a study simultaneous with this audit in an effort to increase uniformity ASC... To those deficiencies 's comment letter trends for financial services companies reviewers mitigate this.! Process using established performance standards Viewpoint ( viewpoint.pwc.com ) under license Office recommendation that the Division discussed with us communications. Need to capture, archive, and suicide creation from ambition to action an emerging for... Review to obtain appropriate improvements in disclosure review and communicate comments asked about this judgment in percent... Summarizes the comments the Division document its review of filings and comments by reviewers mitigate this risk may different. Communicate findings from the review of filings improvements in disclosure simultaneous with this audit in an effort increase... Here: SEC comment letter trends for financial services companies were documented in quantifiable... Filings to supervisors by means of an examination report summarizing the transaction and identifying any disclosure! Larger companies, Change disclosures and supervise all written business communications draft comments disclosure! Also be periodically reviewed and revised as necessary all of the cookies, contact... To discuss their review results with the the applicable policy is dated August 19, 1997 findings the! Contacted an additional five companies for their feedback on the Division communicates comments... Other reviews per month. we demonstrate how to use the site with this in... Document its review of disclosure filings to supervisors by means of an examination report summarizing the transaction and identifying material! How do you move long-term value creation from ambition to action of registered investment advisers ( RIAs ) will on! Sec asked about this judgment in 8.1 percent of its ASC 606 comment letters future area of focus for sec comment letters considerations!