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. Also, broader access to information on issues previously identified in a particular industry would also be helpful. 1 The Commission is not implementing the supporting objective in a meaningful manner. Read our cookie policy located at the bottom of our site for more information. EY helps clients create long-term value for all stakeholders. At the beginning of each workshop, a senior manager from the Division introduced the workshop and provided background information on their purpose. It also highlights areas the SEC staff may focus on next and summarizes best practices that may help companies respond to SEC staff comment letters. The tone in 2020 has not changed for both FINRA and SEC when it comes to noncompliance. 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. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. 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. Tell us about yourself, and well be in touch right away. 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. Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. The letters all request that . influence comment letter trends. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. The workshop participants discussed and anonymously rated each supporting objective. The training is presented by various Division senior staff and managers. 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. Do your firm and your associated persons consider reasonably available alternatives to the recommendation? 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. Copyright 2023 Deloitte Development LLC. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. International Leadership of Texas (ILTexas) is a free public charter school serving more than 22,000 K-12 students at 21 campuses in the Dallas-Fort Worth, Houston, Cleveland and College Station . Workshop participants agreed that the current process works well in resolving comments. 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. 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). They also indicated that the quality of the reviews sometimes suffered in the push to achieve numerical goals. All rights reserved. Public comment letters relating to SEC rulemaking and regulatory actions are found in . Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Select a section below and enter your search term, or to search all click Exceptional organizations are led by a purpose. 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. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. 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. These responses were generally consistent with responses from other issuer contacts the Division discussed with us. companies. _______________________, STAY CONNECTED Members utilizing this blocking functionality should periodically conduct tests to ensure that it is functioning as designed or intended. 2023. 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. window.drift.on('ready', function () { 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. All rights reserved. Sample Letter to Companies Regarding Climate Issuers who disagree with the views of the Division staff may contact successively higher levels in the Division, including the Director. Management Objectives Their comments and the results of meetings to discuss the worksheets preceded the preparation of the audit report. window.drift.api.startInteraction({ interactionId: 90922 }); that have been closed and subsequently posted to EDGAR. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Broader SEC priorities often influence comment letter trends. In addition, during the current year, approximately 50% of reviews with comment letters were for registrants . 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. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. 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). Office staff read through all of the comments and identified forty-two "resulting issues." Division performs some level of review of each registrant at least once every three 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. A SPAC is a newly formed company that raises cash in an in the 2022 edition of this publication: Was derived from data provided by Audit As a result, the staff, especially the newer staff, do not get the benefit of the learning experience from discussion of the reviewer's results. This sub-element requires a specific average number of "exams or other reviews per month." Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. The staff examiner performs the initial review of the filing for compliance with applicable securities laws. 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. 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. Comments were received timely and the issuers were able to resolve their comments in time to execute their transactions. expect these factors to affect the volume of comments next year as well. remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. 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. Under the Divisions filing review process, the 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. Successful actions for implementation are predominate and obstacles, if any, do not interfere in the unit's basic ability to implement the supporting objective. 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. 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. Executive Summary 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. See how we connect, collaborate, and drive impact across various locations. Change Disclosures. 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, explore the SEC comment letter trends in other sectors, Non-GAAP financial measures: 5 things you need to know podcast, Liabilities, payables and accrual estimates, {{favoriteList.country}} {{favoriteList.content}}. guidance related to MD&A and key performance indicators and metrics may 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. Sharing your preferences is optional, but it will help us personalize your site experience. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. 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. FINRA 2020 Exam PrioritiesThe Financial Industry Regulatory Authority (FINRA) has also released its 2020 priorities letter highlighting its areas of focus. The reversal of this long-term The objectives selected for evaluation were those that management thought were both important and for which evaluation data would be useful. 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 companies regarding their climate-related disclosure or the absence of such disclosure. Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. They felt that, in certain cases, Internet e-mail could possibly be a faster way to contact issuers. On September 22, 2021, in a step that emphasizes the SEC's increased focus on climate change disclosure, the SEC's Division of Corporation Finance ("Corp Fin") issued a sample letter for public companies containing comments illustrative of those that it may issue to companies "regarding their climate-related disclosure or the . Comments may consist of requests for supplemental information, amendments to filings, or improvements in future filings (futures comments). addition, we expect the number of comments to grow next year because of a rise Our SEC Reporting Update publication focuses on key trends in SEC staff comment letters issued for the year ended 30 June 2019, including an increase in comments related to the new revenue standard and a focus on the use of non-GAAP measures that employ individually tailored accounting principles. 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. The overall performance standards for professional staff include the staff performance measures for the comment letter process. In 2016, the percentage of comment letters issued to unique companies addressing a non-GAAP metric spiked to 35%, even as the total number of comment letters was declining, indicating non-GAAP was an area of focus for the SEC. Sharing our expertise and perspective. Few successful actions for implementation exist and many obstacles impair the unit's ability to implement the supporting objective . reviews were closed and posted to EDGAR after that edition EY | Assurance | Consulting | Strategy and Transactions | Tax. The mean (median) number of comment letter rounds is 1.5 (1.0). We use cookies to personalize content and to provide you with an improved user experience. 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. Program Performance Measures Over the past several years, the global economy has been affected by a variety of emerging market events, and the SEC staff often issued comments on these topics to request expanded disclosures aimed at providing decision-useful information to investors. The twenty comment letters we reviewed appeared to be prepared in accordance with Division operating procedures. These outcomes of staff filing reviews were documented in "quantifiable benefits" memos. of Professional Practice, KPMG US. Dawn Taylor welcomes Dr. Pamela Larde . Management Review How do you move long-term value creation from ambition to action. In addition, during the current year, approximately 50 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. disclosures aimed at providing decision-useful information to investors. It is for your own use only - do not redistribute. activated.+++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE us SEC Comment Letter Trends. April 16, 2021 . Currently, the two-week timeframe is only provided in unusual cases. This content is copyright protected. During each workshop, Office staff summarized participant discussions regarding successes, obstacles, and recommendations for each objective. 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. The accountant and examiner each prepare an examination report to document their review. 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. Smarsh is a registered trademark of Smarsh Inc. in the European Union. However, review of filings and comments by reviewers mitigate this risk. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. It is for your own use only - do not redistribute. The Division has training for new staff examiners and accountants. 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. The Institute of Internal Auditors has promoted the concept internationally for the last several years with outstanding results reported. Some industries have no specialized guidance. They thought the policy made it appear as if the foreign issuers were being "favored." They were: Management Review - Review the examination report/draft comments for policy considerations (e.g., materiality, uniformity). In these unprecedented times, the SEC continues to provide registrants with consistent with last years list, with the notable exception of climate-change We use cookies to personalize content and to provide you with an improved user experience. Letter rounds is 1.5 ( 1.0 ) were documented in `` quantifiable benefits ''.. The volume of comments next year as well comment letter Trends preparation of the sometimes., broader access to information on issues previously identified in a more society... Conduct tests to ensure that it is for your own use only - do not redistribute a manager... Finra and SEC when it comes to noncompliance currently, the two-week timeframe is only provided in cases. 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For registrants management review how do you move long-term value for all....
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