Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. To stay logged in, change your functional cookie settings. 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. The Office prepared the audit report. We use cookies to personalize content and to provide you with an improved user experience. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. On the other hand, managers indicated that they view the number of filings reviewed as just one element of the overall performance evaluation. Partner, Dept. Copyright 2023 Deloitte Development LLC. For example, in 2010 the staff issued (1) periodic updates to the Explore the topics at the Financial Reporting View. 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. These include: communications with the public (with a focus on private placement retail communications and communications via digital channels); Regulation Best Interest (Reg BI), cash management, and bank sweep programs; direct market access controls; best execution; disclosure of order routing information; and cybersecurity. The Office facilitator recorded the rating for each participant on the flipchart. If appropriate, an issuer may also seek consideration from the Division's Office of Chief Accountant or from the Division Director. Welcome to the Deloitte Accounting Research Tool (DART). Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors . Each workshop took from 4 to 6 hours to complete. This sample comment letter follows a recent increase in climate-related . Certain services may not be available to attest clients under the rules and regulations of public accounting. The following areas are central to the standard's accounting and disclosure requirements and are often the subject of SEC comment letters: 1. By Anonymous. At EY, our purpose is building a better working world. Thus, an employee would be able to access the Internet but not the email functionality. The SECs office of compliance inspections and examinations (OCIE) released its 2020 exam priorities. On the other hand, staff described a number of concerns. Quantitative Analysis Also prior to the workshops, the auditors developed sets of questions that related to each objective. The rating scale used by the participants ranged from 7 (full implementation) to 1 (not being implemented in a meaningful manner). However, they also indicated that the training needed to focus more on the work that the staff actually performed. 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. Approximately 19% of the comment letter conversations include a confidential treatment request from the firm to redact at least a portion of their response letter. 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. Of these, 90% resulted in changes in income of 10% or more. communicating that its review is complete. 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. 7 The supporting objective is extremely important and the Commission should fully implement it. KPMG webcasts and in-person events cover the latest financial reporting standards, resources and actions needed for implementation. For more information about our organization, please visit ey.com. The evaluation process based on these standards is intended to improve individual and staff performance, including performance in the comment letter process area. During each workshop, Office staff summarized participant discussions regarding successes, obstacles, and recommendations for each objective. Publication date: 30 Jun 2022. us SEC Comment Letter Trends. The firm should be able to demonstrate adherence to the requirements during exams conducted by regulators. The staff should then review what was issued and obtain any necessary explanations. Overall, managers assigned higher ratings than did the staff to the achievement of all but one of the supporting objectives. Click on a trend or select a trend from the table of contents to learn more. Prior to the workshops, each participant received a handbook that described expectations and encouraged them to think about the management objectives in advance. Also, broader access to information on issues previously identified in a particular industry would also be helpful. 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. 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 The workshop participants discussed and anonymously rated each supporting objective. Management and auditors discussed a number of examples of possible objectives in several joint meetings. Assistant Directors (ADs) review the most complex filing issues. After reviewing a filing, staff prepare an examination report summarizing the transaction and identifying any material disclosure issues. Investment company examinations will focus on mutual funds and exchange-traded funds, the activities of their RIAs, and the oversight practices of their boards of directors. In addition to issuing comment letters on registrants' SEC filings, the Division of Corporation Finance has continued to broadly increase its communications related to enhancing disclosures. This sub-element requires a specific average number of "exams or other reviews per month." Once the new standard goes into effect on June 30, 2020, FINRA will start examining firms actual compliance with Reg BI and its new customer relationship summary disclosures. Also, participants have difficulty tracking issuer changes made to electronic filings in response to comments, especially in financial statements. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Focus Areas Relating to Investment Advisers, Investment Companies, Broker-Dealers, and Municipal Advisors OCIE will continue its risk-based examinations for each type of these registered entities. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. 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 . We expect these factors to affect the volume of comments next year as well. companies. The reversal of this long-term trend may have resulted from (1) the SECs targeted review of climate-change disclosures; (2) recently amended SEC rules related to the description of the business, risk factors, and MD&A; and (3) the use of comments to elicit expanded disclosures related to emerging issues. expect these factors to affect the volume of comments next year as well. This week, Heather Horn was joined by Valerie Wieman, a partner in PwC's National Office, to discuss a brand new comment letter tren This document is an HTML formatted version of a printed document. Specifically, the SEC asked companies how certain items (such as advertising or commission revenue, outcome-based . 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. Regulators are focusing on both Reg BI implementation and technology, so make sure not to miss the mark. future area of focus for sec comment letters. the 10% increase in SEC staff comment letters in the year ended 30 June 2022. They valued the experience of working in substantive areas of securities law. window.drift.api.startInteraction({ interactionId: 90922 }); Do Not Sell or Share My Personal Information. The supporting objectives reflect activities that increase the chances of achieving the primary objective. SEC Comment Letter Trends. Staff participants expressed the desire for Internet e-mail access. We Also, they list any deficiencies in the filing's disclosures and propose comments relating to those deficiencies. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. You may withdraw your consent at any time by emailing privacy@smarsh.com. Comments may consist of requests for supplemental information, amendments to filings, or improvements in future filings (futures comments). The Office will also use this information in its risk assessments, used to select future audits. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. Generally, this task is delegated to senior accountants and examiners. Please seewww.pwc.com/structurefor further details. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. For instance, the training concerned with accounting proposals, while interesting, was not viewed as particularly useful. Management and staff provided nearly identical scores for the importance of two supporting objectives, management review and communicate comments. Performance obligations: Nature of performance obligations - Descriptions of your contracts discuss several activities. 5 The supporting objective is relatively important and it should be generally implemented at the Commission. priorities: For a comprehensive discussion of We asked participants to review the worksheets relating to their workshop and verify their accuracy. 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. Unless noted otherwise, comment letter trend information 3 The supporting objective is relatively unimportant and its general implementation should not be a high priority at the Commission. referred to generally as filings). It is that time of year when many public companies are in the midst of the financial reporting season and . In response, management indicated that accounting and legal comments were, at one time, presented separately in the comment letters. SEC staff is using insights from this work in its drafting of new ESG-related disclosure requirements. Some of the checklist items are seen as irrelevant and refer to issues that are no longer important. In a sign of the significant increased focus on climate change that has taken place under the Biden administration, the Wall Street Journal recently reported that the SEC's Division of Corporation Finance has sent comment letters to "dozens" of companies relating to their climate change disclosures. The Division uses its comment letter process to communicate staff concerns and potential deficiencies to filers in order to improve disclosure. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. 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 . The comments are then faxed to the issuer. Participants were asked to describe risks in the examination report/draft comment process. Misalignment between information sources will send up red flags and that means comment letters that can significantly set back the IPO timeline. comments joining the list. These potential measures include: the cost of the filing review function versus the dollar volume of the markets; the cost of the review as a percent of the filing fee; the dollar amount of changes in financial statements based on filing reviews; the number of material comments on filings with unqualified ("clean") audit opinions; the number of filings with comments implemented; the number of foreign companies that file with the SEC; and the value of fraudulent offerings stopped. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. Participants in several workshops indicated that the Division could be even more successful in resolving comments with more follow-up of futures comments on Forms 10K. 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. Many participants enjoyed the level of responsibility assumed early in one's career and working with the top securities lawyers and firms in the industry. The SEC continues to prioritize reviews of larger companies, Does your firm have policies and procedures to provide the disclosures required by Reg BI? KPMG professionals research, update and produce publications including in-depth handbooks. All rights reserved. 2021 edition of this publication because additional 2021 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. See how we connect, collaborate, and drive impact across various locations. 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. To help the SEC meet its responsibilities under the Sarbanes-Oxley Act, [Appendix B contains the rating criteria used by the participants.] 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. Under the Divisions filing review process, the Thursday, May 5, 2022. By continuing to browse this site, you consent to the use of cookies. consistent with last years list, with the notable exception of climate-change Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. A written list of steps, referred to during the workshops as a "checklist," guide the examination process. with large accelerated filers representing 61 percent of the reviews with SEC Comment Letter After each workshop, the auditors typed the summary successes, obstacles, and recommendations from the flipcharts to a formatted word-processing document (one page per objective). Please see www.deloitte.com/about to learn more about our global network of member firms. PwC. FINRA included a checklist of what examiners will be looking for after Reg BI goes into effect: Firms should consult this years priorities letters to better assess their compliance with relevant requirements and regulators expectations. 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. Participants indicated that issuers sometimes do not appear aware of the protections available for the supplemental material submitted to the Division. jQuery('#chat').click(function(){ Comment Letters. Do your firms supervisors know the red flags that indicate a registered representative may be communicating through unapproved communication channels? A major goal of the audit was to maximize the value of the audit to management, while maintaining auditor independence. Sharing your preferences is optional, but it will help us personalize your site experience. 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. It includes instruction in information sources, reviewing the Management's Discussion and Analysis section of filings, EDGAR, how to review a filing, and legal and accounting issues. 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. The reviewers review the examination report and draft comments prepared by the staff accountants and examiners to ensure that any material disclosure issues in the filing are identified. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. It also highlights areas the SEC staff . 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. 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. _______________________, STAY CONNECTED 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. 2019 - 2023 PwC. 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. of Professional Practice, KPMG US. 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. acquisition of a private operating company. CEO survey: US CEOs brace for a recession of unknown magnitude. 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 number of the aforementioned trends are likely to continue in Participants were generally pleased with the training they received. The sample comment letter includes an illustrative, non-exhaustive list of comments that the SEC's Division of Corporation Finance may issue to companies about their climate-related disclosure or the absence of such disclosure. EY helps clients create long-term value for all stakeholders. Bloomberg. We also reviewed a list of 192 companies whose filings were reviewed by the Division and that were contacted by the Chairman of the Commission to obtain feedback on their experience with the Division's filing review process. 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. For inquiries and feedback please contact ourAccountingLink mailbox. 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. STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. Amendment requests indicate that the required improvements are viewed as material to an investor's decision. This webcast will feature: Recent themes and trends in SEC comment letters 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. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. Analytics. Workshop participants anonymously rated how well the Division achieved each of its six supporting objectives. The Commission receives thousands of filings each year by issuers registering securities and submitting required reports and schedules. (5) effectiveness of compliance programs. Read our cookie policy located at the bottom of our site for more information. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. 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. Responding to a comment letter? The term "comment letters" may refer either to the letters that individuals and entities submit in response to requests for public comment on SEC rule proposals or concept releases, or to correspondence between SEC staff and SEC filers. During the filing review, the accountant and examiner maintain contact with the issuer for clarifications and additional information relating to the disclosures in the filing. The twenty comment letters we reviewed appeared to be prepared in accordance with Division operating procedures. 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. Please see www.pwc.com/structure for further details. years and may issue comments to such registrants. 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. The term comment letters may refer either to the letters that individuals and entities submit in response to requests for public comment on SEC rule proposals or concept releases, or to correspondence between SEC staff and SEC filers. Does your firm periodically test its systems to ensure these communications are being captured for review and retention? As part of this work, the SEC has been sending comment letters to public companies relating to their current climate change-related disclosure, including to companies that do not operate in energy-intensive industries. We also expect the SEC staff Most frequent comment areas The SEC staff continues to focus on many of the same topics that we highlighted last year. Division management indicated that they found the information extremely useful. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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. 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 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. Issuers who disagree with the views of the Division staff may contact successively higher levels in the Division, including the Director. Lack of flexibility in work hours concerned some staff. Matt specializes in serving clients in the energy and resources industry, including exploratio More, Insert Custom HTML fragment. The checklist is generally the same for all the industry groups. Participants indicated that these senior staff, referred to as "reviewers," are appointed based on their experience and background in the particular group. For example, draft filings are sometimes accepted to save filers time and money. Most of the participants also agreed that, although the number of registrations filed and reviewed has increased, while staffing has remained relatively static, the quality of the reviews remains high. Each member firm is a separate legal entity. 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. trend may have resulted from (1) the SECs targeted review of climate-change About 6.5% of the CTRs (1% of the overall sample) are related to Rule 406. Participants agreed that the Division uses the number of filings reviewed as its primary performance measure. Dawn Taylor welcomes Dr. Pamela Larde . This audit report is based on these analyses. 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 SEC continues to prioritize reviews of larger companies, with large, accelerated filers representing 61% of the reviews with comment letters in the current year even though they represented only 31% of the Forms 10-K filed. closing letter to the registrant) within the corresponding On September 22, 2021, the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) issued a sample comment letter to highlight its increased focus on climate change-related disclosures or the absence of such disclosures in issuer filings under the Securities Act and the Exchange Act.
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