future area of focus for sec comment letters

Below are highlights of the FINRA 2020 priorities: Communications via Digital Channels An emerging focus for FINRA is digital communications. After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. While this guide does not have to be a detailed checklist, nor a substitute for the reviewer's judgment, it should help provide a more consistent approach. 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 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. 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. 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. 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. An investor attention-based quantitative measure of importance, using EDGAR downloads, also predicts these outcomes. In Does your firm have policies and procedures to provide the disclosures required by Reg BI? 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. Please enable JavaScript to view the site. Communicate Comments - Develop and communicate (written and verbal) comments to the issuers or their representatives. Comments may consist of requests for supplemental information, amendments to filings, or improvements in future filings (futures comments). Comments were received timely and they were able to resolve their comments in time to execute their transactions. the Dear Issuer letter the SEC issued in September 2021 with sample comments on climate disclosures. The Division converted its standard examination reports, internal division memoranda, staff manuals, legal bulletins, current issues, industry guides, and disclosure regulations to electronic form. The mean (median) number of comment letter rounds is 1.5 (1.0). In many instances, they had already recognized the issues and taken corrective actions. 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. Asking the better questions that unlock new answers to the working world's most complex issues. Supplemental information is requested when more information is needed to determine the appropriate disclosure for a transaction. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. We use cookies to personalize content and to provide you with an improved user experience. Participants also gave us their ideas of the characteristics of outstanding staff. They generally rated training on new releases as good. 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. Partner, Dept. comment letters in the current year even though they represented only 31 percent A number of the aforementioned trends are likely to continue in 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). Of these, 90% resulted in changes in income of 10% or more. rates, as well as other emerging market events, and perhaps focus future Information in this publication is based on If the firm elects to prohibit its use altogether, keeping employees from accessing non-member email platforms for business purposes, then there is a need to require employees to certify that they are acting in accordance with such policies and procedures on an annual or more frequent basis. Company name must be at least two characters long. Senior and middle managers and support offices such as Chief Counsel and Chief Accountant should participate in training. 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. OCIE prefaces the 2020 priorities by emphasizing the vital importance of compliance programs and compliance professionals. It also highlights areas the SEC staff may . Fullwidth SCC. 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. 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. In addition, during the current year, approximately 50 Scope And Objectives The firm should be able to demonstrate adherence to the requirements during exams conducted by regulators. Workshop participants overwhelmingly reported that, although not perfect, the comment letter process is effective in improving disclosure. Also, broader access to information on issues previously identified in a particular industry would also be helpful. Heres how the numbers have Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. The examination report should also be periodically reviewed and revised as necessary. Staff Performance Measures - Evaluate staff performance in the comment letter process to improve individual and program performance. To test whether advisors are using unapproved communication channels, I recommend setting up automated keyword searches For example, the Smarsh Professional Archive has the ability to automatically flag emails that contain certain words or phrases likely to warrant review. These letters set forth staff positions and do not constitute an official expression of the SECs views. Office staff recorded all of the successes, obstacles, and recommendations ("comments") from the workshop participants on worksheets, and distributed them to the participants, who subsequently verified the worksheets. 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. Ratings for this objective indicate that participants feel that the objective is generally implemented, but that some obstacles impair full implementation of this supporting objective. Bloomberg. This sample comment letter follows a recent increase in climate-related . Do not delete! 6LinkedIn 8 Email Updates, Appendix A - Control Self Assessment Methodology. Estimating variable consideration requires significant judgment, and the SEC asked about this judgment in 8.1 percent of its ASC 606 comment letters. The standards include six general categories. These audit steps are described in further detail in Appendix A. The Division has training for new staff examiners and accountants. comments the Division issued during its reviews of periodic filings of public 27 11. future area of focus for sec comment letterschucks and pearls meaning. Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors . Dina Bass. The Securities and Exchange Commission's Office of Inspector General (Office) evaluated the Division of Corporation Finance's (Division) comment letter process. 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. We help fill the void in the literature by examining the influence of SEC comment letters on one type of transactional . reviews that are still ongoing or have recently been EY | Assurance | Consulting | Strategy and Transactions | Tax. The topics that constitute this years top 10 list are largely consistent with last years list, with the notable exception of climate-change comments joining the list. Under the Divisions filing review process, the Division performs some level of review of each registrant at least once every three years and may issue comments to such registrants. The staff accountant performs the initial review of the financial statements in the filing for compliance with Generally Accepted Accounting Principles and other accounting rules and regulations. At EY, our purpose is building a better working world. 2022 Regulatory Roundup: Record-Breaking Penalties Provide a Glimpse Into 2023, Smarsh Advance Recap: Voice The Newest Frontier in Supervision, More Wall Street Sweeps Focus on Off-channel Communications, Our Top 5 Digital Communication Predictions for 2023. Please seewww.pwc.com/structurefor further details. Applicability. KPMG does not provide legal advice. The Division periodically provided the Chairman of the SEC a list of companies with recently effective registrations. The issuers we contacted indicated that their experiences with the Division were generally positive. 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. percent of reviews with comment letters were for registrants generating $1 A SPAC is a newly formed company that raises cash in an focus area of sec comment letters revenue recognition. However, they also indicated that the training needed to focus more on the work that the staff actually performed. Each general category contains an average of five sub-elements. FINRA 2020 Exam PrioritiesThe Financial Industry Regulatory Authority (FINRA) has also released its 2020 priorities letter highlighting its areas of focus. 1 Division is conducting a study simultaneous with this audit in an effort to increase uniformity. This also gave management a better understanding of the audit results, since they also analyzed the resulting issue worksheets. By Jeremy Simons. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. This message will not be visible when page is Management Review years and may issue comments to such registrants. 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. Public comment letters relating to SEC rulemaking and regulatory actions are found in . Staff participants expressed the desire for Internet e-mail access. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. proactive guidance as needed and to conduct ongoing reviews and oversight to protect 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. The topics that constitute this years top 10 list are largely 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.". 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. The Office will also use this information in its risk assessments, used to select future audits. Resolve Comments - Gain issuer acceptance of comments through implementing amendments and futures comments. EY | Assurance | Consulting | Strategy and Transactions | Tax. 3 The Commission is generally not implementing the supporting objective. 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. considering new requirements related to cybersecurity and climate disclosures, 17 The number of SEC comment . A version of a private sector, internal audit methodology (Control Self-Assessment or CSA) was adapted for this purpose. 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). Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. 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. Financial_services_DM. Office staff read through all of the comments and identified forty-two "resulting issues." result in increased focus and scrutiny from the SEC staff. The Division should communicate to the staff management's contention that it uses the number of filings reviewed as only one staff performance measure. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Participants agreed that the Division uses the number of filings reviewed as its primary performance measure. By continuing to browse this site, you consent to the use of cookies. EY helps clients create long-term value for all stakeholders. billion or more of revenue, although these larger registrants represented only 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. Smarsh is a registered trademark of Smarsh Inc. in the European Union. 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 You may withdraw your consent at any time by emailing privacy@smarsh.com. 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. Exceptional organizations are led by a purpose. You must consult an attorney for advice regarding your compliance with laws and regulations applicable to your business. The growing number and complexity of cybersecurity risks facing investment advisers (IAs) have triggered an increased interest in cyber risk management by the SEC, including a planned sweep of more than 50 registered IAs and broker-dealers. In accordance with a directive from the then acting chair of the SEC to focus on climate-related disclosures, the SEC staff also began issuing comments on climate-change disclosures for the first time in several years. COVID-19 pandemic, Russias invasion of Ukraine, supply-chain and labor issues, They met twice to discuss the issues and identify potential actions to enhance the comment letter process. Please seewww.pwc.com/structurefor further details. For instance, the training concerned with accounting proposals, while interesting, was not viewed as particularly useful. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Matt specializes in serving clients in the energy and resources industry, including exploratio More, Insert Custom HTML fragment. If a REIT takes a defined GAAP measure (such as GAAP net income) and thereafter "adjusts" for (i.e., excludes or includes) one or The Division should develop a guide for reviewers to use in reviewing examination reports. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. The SEC began publicly releasing this correspondence in 2005 for filings made after August 1, 2004 that were reviewed by the SEC staff. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. We The Division has also indicated it has taken steps to reduce the burden on the filer. was issued. Participants indicated that a more direct link between the training and the filings they actually review would make the training more effective. Our Thinking. Follow along as we demonstrate how to use the site. continue to be areas of focus for the SEC in 2011. 2023. jQuery('#chat').click(function(){ 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. For example, in 2010 the staff issued (1) periodic updates to the The sample comments focus specifically on the impact that "[r]ecent bankruptcies and financial . 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. 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. 5 The Commission is generally implementing the supporting objective. Disclosure-event abnormal returns, revenue . Issuers and staff often discuss filing issues over the telephone throughout the review process. Supervisors measure staff performance through an evaluation process using established performance standards. 3 The supporting objective is relatively unimportant and its general implementation should not be a high priority at the Commission. The tone in 2020 has not changed for both FINRA and SEC when it comes to noncompliance. 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? Sub-elements relating to the comment letter process are distributed throughout the six general categories. 2021 edition of this publication because additional 2021 However, issuers often do not request this protection. Broker-dealer examinations will focus on issues relating to the preparation for and implementation of recent rulemaking, along with trading practices. 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. Accordingly, the statistics presented may be affected by You can set the default content filter to expand search across territories.