SEC staff comment letter trends

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Video , PwC US Dec 07, 2017

By reviewing SEC staff comments over the past year, we identified common areas of focus. Our video discusses five areas that garnered the highest volume of comments. Watch our video for helpful hints on improving disclosures as you navigate your year-end financial reporting process.


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Hi, I’m Maria Minhas, a senior manager in PwC's National Office.

With the help of my colleagues in the SEC Services Group, we want to highlight five of the areas receiving the most attention from the SEC staff in recent comment letters.

The five comments we want to discuss are:

  • MD&A
  • Segments
  • Impairments
  • Non-GAAP measures
  • SAB 74

Each of these areas is applicable to a broad range of industries.

So let’s start with MD&A.

The volume of comments related to MD&A remains high, and the areas of focus tend to be consistent year to year.

SEC staff comments have reminded companies that the results of operations section should include events, transactions, and economic trends that may cause, a material change in the relationship between costs and revenues. SEC staff comments frequently underscore that MD&A should not simply repeat information provided elsewhere in the filing. Rather, it should explain the underlying drivers of changes in the financial position, results of operations, and cash flows of the company. The SEC staff has also challenged companies to quantify the impact such drivers have had, especially when an account has been impacted by multiple factors.

In the area of taxes, MD&A should include the main reasons for changes in effective tax rate, the extent to which the historical effective rate is indicative of the future tax rate, the impact of the indefinite reinvestment of foreign earnings on liquidity, and uncertainties related to the company's tax positions.

Lastly, while not required, SEC staff comments have encouraged the discussion of MD&A by segment if such analysis would provide readers with a more in-depth understanding of the consolidated results.

Thanks Maria. Next we want to discuss Segments. The SEC staff continues to ask questions about how companies have identified operating segments and aggregated them into reportable segments. And as business operations evolve, the way management makes operating decisions and assesses performance are also likely to evolve. Therefore, companies should periodically re-assess their operating segments, in particular after significant acquisitions or dispositions, changes in organizational structure, and changes in management personnel.

Two or more operating segments may be aggregated if they have similar long-term financial performance and if they exhibit similar economic characteristics. The SEC staff often issues comments related to compliance with the economic similarities criterion. The staff may look at analyst presentations, earnings releases and listen to investor calls, which may indicate how a reasonable investor analyzes the business and the level of detail provided by management for that purpose. Providing gross margins for specific components may indicate that there is discrete financial information available and therefore the component should be considered an operating segment.

That’s helpful Resianna. Next up is impairments. The SEC staff frequently requests details about the qualitative and quantitative factors that support goodwill impairment test conclusions. Specifically, for reporting units with a fair value not substantially in excess of their carrying amount, the staff has requested information regarding the assumed growth rate, historical operating results, assumptions inherent in forecasted information, and market-participant assumptions, and often asks for expanded disclosures.

For both goodwill and other types of impairment testing, like tangible and intangible assets, the SEC staff continues to question the timing of the recognition of impairments. The staff will often request details regarding the impairment tests and may ask whether economic and market conditions and operating losses at the segment level should have triggered an interim impairment analysis.

Great information Matt. Now let’s discuss non-GAAP measures. The volume of comments related to non-GAAP measures increased since the 2016 update of the SEC staff’s Compliance and Disclosure Interpretations.

The interpretations highlight non-GAAP measures that might be misleading, including measures that exclude recurring, cash operating expenses necessary to operate a company’s business; inconsistencies in calculating the non-GAAP measures period to period without disclosure of the change; and measures that exclude one-time charges, but not one-time gains.

The staff frequently points companies to the updated interpretations when non-GAAP measures are presented with greater prominence than their comparable GAAP measures.

Thanks Stephen. Finally, SAB 74. As the implementation date of several major new accounting standards approaches, the SEC staff has used public forums to remind companies of their responsibility to disclose the impact final FASB standards not yet adopted may have on their financial statements. This requirement is set forth in Staff Accounting Bulletin No. 74. The disclosures should assist the reader in assessing the impact the adoption of new standards will have on the financial statements of the company.

When assessing their impact, companies should ensure they consider the full scope of the standard, which covers recognition, measurement, presentation, and disclosure. So, they should consider the impact in all areas, including disclosures, before concluding that the effects of a standard will not be material. And while the new revenue standard is the closest to adoption, don’t forget about disclosing the expected impact of the standards on leases and credit losses.

The SEC staff has increased its level of scrutiny in this area and we have begun to see more comments related to these disclosures.

So, those are five of the trending SEC comment letters topics. We hope you found this helpful as you enter the year-end financial reporting cycle. To learn more about these and other comment letter trends, you can find our sector-specific publications on

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Heather Horn

US Strategic Thought Leader, National Professional Services Group, PwC US

David Schmid

IFRS & US Standard Setting Leader, National Professional Services Group, PwC US

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