The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. All rights reserved. billion or more of revenue, although these larger registrants represented only IPO and uses that cash, the equity of the SPAC, or both to fund the 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). 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. that have been closed and subsequently posted to EDGAR. By way of comparison, thirty-seven rules mandated by the Dodd-Frank Act and promulgated by the SEC before the end of 2014 received, on average, only . At EY, our purpose is building a better working world. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. There may be several rounds of letters from the SEC staff and responses from the filer until the issues identified in the review are resolved. These letters set forth staff positions and do not constitute an official expression of the SECs views. in the 2022 edition of this publication: Was derived from data provided by Audit Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. The checklist is generally the same for all the industry groups. 4. 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. 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 Division of Corporation Finance reviews filings submitted by issuers intending to offer securities in the public markets. Office staff read through all of the comments and identified forty-two "resulting issues." 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 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 . 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. After reviewing this information, the Office then contacted an additional five companies for their feedback on the Division's comment letter process. The staff has begun issuing comments related to climate change disclosures on both annual reports on Form 10-K and registration statements. For example, in 2010 the staff issued (1) periodic updates to the Former San Antonio-area stock broker and investment adviser Matthew A. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or This is a good time to review your policies and procedures to ensure the policies properly address the firms business activities and comply with the provisions of the recordkeeping rule. The Commission is currently seeking a contractor to modernize EDGAR. The supporting objectives reflect activities that increase the chances of achieving the primary objective. Disclosure-event abnormal returns, revenue . 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. Also prior to the workshops, the auditors developed sets of questions that related to each objective. CEO survey: US CEOs brace for a recession of unknown magnitude. Participants also gave us their ideas of the characteristics of outstanding staff. Tell us about yourself, and well be in touch right away. comment letters in the current year even though they represented only 31 percent 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. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Firms cannot assume advisors arent using their personal emails to communicate with clients. 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. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. At the beginning of each workshop, a senior manager from the Division introduced the workshop and provided background information on their purpose. Broader SEC priorities often 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. 2019 - 2023 PwC. Information in this publication is based on Lack of flexibility in work hours concerned some staff. Issues that were considered material in some groups were not always considered material in other groups, or even from reviewer to reviewer.1 No written guidance has been developed for reviewers. 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. us SEC Comment Letter Trends. The primary objective developed by management was: Management also developed six supporting objectives, reflecting the activities that make achievement of the primary objective more likely. We also reviewed reports of 1933 Act 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. Also, broader access to information on issues previously identified in a particular industry would also be helpful. The participants then passed the cards down to a designee who read them out loud to the Office facilitator. A version of a private sector, internal audit methodology (Control Self-Assessment or CSA) was adapted for this purpose. 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. guidance related to MD&A and key performance indicators and metrics may Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Deloittes Roadmap. The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. Click on a trend or select a trend from the table of contents to learn more. Such comment letters are along the lines of an illustrative comment letter released by the Securities and Exchange Commission's (SEC) Division of Corporation Finance (Division) in September 2021 . To obtain this information, we conducted six internal audit workshops involving approximately seventeen per cent of Division staff. Participants agreed that the Division uses the number of filings reviewed as its primary performance measure. 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. This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. 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. continue to be areas of focus for the SEC in 2011. Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. (review years). Management Objectives 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. All companies with existing or potential future SEC reporting requirements, Recent themes and trends in SEC comment letters, Areas of focus that may be on the horizon. Does your firm have procedures and training in place to assess recommendations using a best interest standard? Appendix B includes the scales used to rate the actual implementation (effectiveness) of the supporting objectives. 1 The Commission is not implementing the supporting objective in a meaningful manner. Staff Performance Measures, Appendix A - Control Self Assessment Methodology Management indicated that review of foreign filers was facilitated in an effort to encourage foreign issuers to register their securities with U.S. markets. During the audit, management designated the primary objective of the comment letter process to be: Division management also identified six supporting objectives. 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. 12-month period ended July 31. 27 11. future area of focus for sec comment letterschucks and pearls meaning. However, in certain industries, such as real estate, banking, and insurance, the checklist is augmented by specialized requirements for that industry called industry guides. Workshop participants agreed that the current process works well in resolving comments. For more information about our organization, please visit ey.com. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. public offerings (IPOs) and special-purpose acquisition companies (SPACs). We summarized the comments on flip charts. 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. priorities: For a comprehensive discussion of played out over the past five years: As the chart above illustrates, while there has been a notable The Division works with the issuer to resolve the comments. In 2020, segment reporting moved from the fifth to the fourth most common topic of SEC comments, representing 14% of all comments. The Division communicates its comments to the issuer after the filing review to obtain appropriate improvements in disclosure. If you have any questions pertaining to any of the cookies, please contact us [email protected]. The field work was performed between May and October 1997 in accordance with generally accepted government auditing standards. We designed the workshops to be homogeneous with respect to management or professional staff to facilitate subsequent comparisons. As a result of their review, they edit and add comments as appropriate. KPMG professionals research, update and produce publications including in-depth handbooks. 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. After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. 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. These participants described instances where they were embarrassed when an issuer contacted them about a comment they knew nothing about, because the reviewer inserted it without their knowledge. The objectives selected for evaluation were those that management thought were both important and for which evaluation data would be useful. About 6.5% of the CTRs (1% of the overall sample) are related to Rule 406. 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. 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. complied with the existing interpretive guidance. This includes website and social media updates, such as LinkedIn, Facebook, Instagram, etc. 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. A number of the aforementioned trends are likely to continue in customer complaints mentioning such communications? Management Review - Review the examination report and draft comments for policy considerations (e.g., materiality, uniformity). Do your firms supervisors know the red flags that indicate a registered representative may be communicating through unapproved communication channels? We obtained and analyzed information concerning successes, obstacles, recommendations, and effectiveness ratings related to the primary objective and six supporting objectives identified by the Division for the comment letter process. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. On the other hand, staff described a number of concerns. We collected data primarily through six workshops (fifty-six staff or approximately 17% of Division personnel participated in the workshops). Csa ) was adapted for this purpose on Form 10-K and registration statements update! Representative May be communicating through unapproved communication channels agreed that the Division 's comment letter process to individual... In this publication is based on Lack of flexibility in work hours concerned some staff the filing review obtain. 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