Participants also valued the extent to which they exercised judgment in their work. This audit report is based on these analyses. include registrant responses. They generally rated training on new releases as good. rates, as well as other emerging market events, and perhaps focus future 7 The Commission is successfully implementing the supporting objective. Scope And Objectives 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, managements discussion and analysis and revenue recognition. Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors . Analytics. 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 . 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, 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. Sample Letter to Companies Regarding Climate The mean (median) number of comment letter rounds is 1.5 (1.0). 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. Managers rated the importance of all of the supporting objectives slightly higher than did the staff. KPMG professionals research, update and produce publications including in-depth handbooks. The evaluation process based on these standards is intended to improve individual and staff performance, including performance in the comment letter process area. Responding to a comment letter? 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. Number of SEC comment letters by year . Content Warning: References to stealthing, rape, toxic relationships, emotional abuse, inflicted trauma, and suicide. 22 percent of the Forms 10-K filed. 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. Disclosure-event abnormal returns, revenue . On September 22, 2021, the Staff of the SEC published a sample comment letter regarding climate change disclosures. Staff requests futures comments when the improvements are not immediately consequential, but will improve disclosure. However, even when removing these form letters from consideration, fully 2,341 individualized comment letters remaina substantial number, and a significant percentage (16%) of the . For inquiries and feedback please contact ourAccountingLink mailbox. Assistant Directors (ADs) review the most complex filing issues. 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. 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. comments the Division issued during its reviews of periodic filings of public PwC. Our analysis of SEC comment letters issued in relation to Form 10-K and Form 10-Q filings . 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. acquisition of a private operating company. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. Public comment letters relating to SEC rulemaking and regulatory actions are found in the Regulatory Actions section of the SECs Web site. The filings selected for some level of review are assigned to a staff accountant and examiner. Do Not Sell or Share My Personal Information. Please seewww.pwc.com/structurefor further details. Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . To send a message to . 2019 - 2023 PwC. This departure from the traditional audit report comment process provided input at an earlier stage in the writing process. Management Review - Review the examination report and draft comments for policy considerations (e.g., materiality, uniformity). years and may issue comments to such registrants. It also highlights areas the SEC staff . The comparisons included analysis of management versus staff, actual achievement versus importance, and opportunities for improvement. (review years). As a result of their review, they edit and add comments as appropriate. 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 staff examiner performs the initial review of the filing for compliance with applicable securities laws. 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. reviews were closed and posted to EDGAR after that edition Broader SEC priorities often influence comment letter trends. Please see www.pwc.com/structure for further details. Staff participants expressed the desire for Internet e-mail access. Generally, this task is delegated to senior accountants and examiners. We also expect the SEC staff 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. These outcomes of staff filing reviews were documented in "quantifiable benefits" memos. We then analyzed the ratings to determine the participants' views of how well they achieved the objectives. The overall performance standards for professional staff include the staff performance measures for the comment letter process. The Division has training for new staff examiners and accountants. Currently, the two-week timeframe is only provided in unusual cases. Overall Results Company name must be at least two characters long. Pertains to 12-month periods ended July 31 Insights. All rights reserved. decline in the number of reviews with comment letters over the past several A list of the specific information available on the server was provided to the staff in a document dated October 14, 1997. the global economy has been affected by a variety of emerging market events, and trend may have resulted from (1) the SECs targeted review of climate-change The Division should develop a guide for reviewers to use in reviewing examination reports. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. PwC. Do not delete! 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. 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. annual reporting cycle, they may find it helpful to consider the following SEC (5) effectiveness of compliance programs. You may withdraw your consent at any time by emailing privacy@smarsh.com. Division staff are now able to access the applicable guidance on-line. 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 . 3 The supporting objective is relatively unimportant and its general implementation should not be a high priority at the Commission. If your firm and your associated persons agree to provide account monitoring, do you apply the best interest standard to both explicit and implicit hold recommendations? 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. Review ourcookie policyfor more information. The Division should use more outcome-based program performance measures to gauge the success of the comment letter process. Also, broader access to information on issues previously identified in a particular industry would also be helpful. 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. activated.+++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. The applicable policy is dated August 19, 1997. 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 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. Actual Effectiveness Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. 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. A version of a private sector, internal audit methodology (Control Self-Assessment or CSA) was adapted for this purpose. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Municipal advisor examinations will include review of registration and continuing education requirements and municipal advisor fiduciary duty obligations to municipal entity clients. The participants then passed the cards down to a designee who read them out loud to the Office facilitator. For instance, reviewers sometimes appeared inconsistent in their approaches. 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. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. }); Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. 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. Do not delete! The workshop participants discussed and anonymously rated each supporting objective. In Does your firm have procedures and training in place to assess recommendations using a best interest standard? inflation, and rising interest rates affecting markets worldwide over the past year. This document is an HTML formatted version of a printed document. Management and staff ratings of the importance of the supporting objectives were also reasonably aligned. They were: Management Review - Review the examination report/draft comments for policy considerations (e.g., materiality, uniformity). Their comments and the results of meetings to discuss the worksheets preceded the preparation of the audit report. With her expertise in financial services industry, compliance and e-discovery, Marianna counsels Smarsh clients on meeting regulatory obligations, leveraging technology and guidance on best practices related to electronic communications supervision. 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. Staff document and communicate findings from the review of disclosure filings to supervisors by means of an examination report and draft comments. Qualitative Analysis 2023 Smarsh Inc. Smarsh and the Smarsh logo are registered trademarks of Smarsh Inc. in the United States. 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. The comments are then faxed to the issuer. and/or revise the labeling of your non-GAAP financial measures in future filings to adequately reflect what is being presented." (SEC Comment Letter to GGP Inc., (March 30, 2017).) PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, 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 issuers we contacted indicated that their experiences with the Division were generally positive. The training is presented by various Division senior staff and managers. Name must be at least two characters long HTML formatted version of a printed document for. The improvements are not immediately consequential, but will improve disclosure supporting objective is unimportant! Filing for compliance with applicable securities laws and rising interest rates affecting markets worldwide over the year... 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