Technology: 2015 SEC comment letter trends

At a glance

2015 technology sector SEC comment letter and disclosure trends

PwC's technology industry publication provides a comprehensive analysis of recent SEC staff comments and disclosures to assist you in understanding the key trends relevant to companies in the technology sector.

This year, we have analyzed nearly 1,200 comments issued by the SEC staff from July 1, 2014 to June 30, 2015 to 350 companies in the following subsectors: software & internet, computers & networking, and semiconductors. Even after a 26 percent decrease in SEC staff comments from 2013 to 2014, this year saw another decrease in comments received by technology companies with the number of comments received decreasing 20 percent in 2015 as compared to 2014. In addition to providing you with insights from SEC staff comment letters this year, we have also analyzed the annual filings of 90 registrants in the software & internet, computers & networking, and semiconductors subsectors over the last twelve months. Specifically, we have benchmarked selected disclosures including non-GAAP measures, segment reporting, and internal control over financial reporting.

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We hope this publication provides you with valuable insights into recent SEC comment letter and disclosure trends across the technology industry and aids you in your production of high quality annual and quarterly reports.


Click on the headings below to explore further analysis on technology SEC comment letter and disclosure trends.

The key objectives of MD&A are to provide a narrative explanation of the financial statements that enables investors to see the company through the eyes of management, to offer context to the financial statements, and to provide information that allows investors to assess the likelihood that past performance is indicative of future performance. We have found the majority of SEC staff comments in this area are not aimed at meeting specific technical requirements, but rather at enhancing the quality of disclosures to meet these objectives.

The SEC staff comments reinforce the well-established MD&A objectives that disclosures should be 1) transparent in providing relevant information, 2) tailored to the company’s facts and circumstances, 3) consistent with the financial statements and other public communications, and 4) comprehensive in addressing the many business risks that exist in today’s economic environment. Results of operations and liquidity and capital resources have garnered the most attention.

Breakdown of MD&A comments by area

Our study of financial reporting trends indicated that 89 percent of companies disclosed non-GAAP measures in their earnings releases, while 46 percent of those companies also disclosed non-GAAP measures in their Form 10-K filings. An analysis of non-GAAP measures by subsector revealed that software & internet companies have a higher propensity to report non-GAAP measures in their Form 10-K filings with 63 percent, compared to 40 percent of computers & networking companies and just 33 percent of semiconductor companies. The most commonly reported non-GAAP measures include non-GAAP earnings per share, net income, operating income, gross profit, adjusted EBITDA, and free cash flow.

Recent SEC staff comments reflect their concern that not all material weaknesses are being properly identified, evaluated, and disclosed. The SEC staff is looking closely at how the company evaluated the severity of the deficiency—focusing both on the magnitude of the actual error and on the volume of activity that reasonably could have been exposed to the deficiency. In the sample of technology companies we studied, nine percent reported ineffective internal control over financial reporting as of the end of their most recent fiscal year. Material weaknesses were identified in the areas of income taxes, revenue recognition and associated estimates, inventory valuation, stock-based compensation and journal entries.

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