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. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staff’s comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area.
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(7/1/2018 – 6/30/2019)*
|Relative change in number of letters compared to the Prior Period*|
|3||Fair value measurement||Flat|
|4||Management's discussion and analysis||Flat|
|6||Goodwill and other intangibles||Flat|
|7||Disclosure controls and ICFR||Flat|
|8||Debt, quasi-debt, warrants and equity||Flat|
|9||Accounting changes and error corrections||Flat|
|10||Terrorist nation sponsor reporting||Flat|
*This analysis was performed based on topical areas assigned by research firm Audit Analytics for comment letters publicly issued in the 12 months ended June 30, 2019 ("Current Period") and the 12 months ended June 30, 2018 ("Prior Period") in relation to Form 10-K and Form 10-Q filings. Total comment letters evaluated during the Current Period and Prior Period were approximately 190 and 260, respectively.
The relative number of comment letters has increased.
The relative number of comment letters has decreased.
The relative number of comment letters has not changed significantly.
The new revenue standard (ASC 606) requires more quantitative and qualitative disclosure than prior guidance. The following areas have been addressed in the SEC staff's comments:
Non-GAAP financial measures result in frequent comments regarding compliance with Item 10(e) of Regulation S-K and the related compliance and disclosure interpretations, sometimes resulting in requests to remove or substantially modify non-GAAP metrics. Focus areas have included:
Fair value measurements often require the application of significant judgment. The SEC staff has focused on the quality of disclosure around those significant judgments and estimates, frequently commenting on:
Certain of the fair value disclosure requirements, and consequently the nature of the SEC staff’s comments may be impacted by ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements, which can be early adopted.
The SEC staff's comments on management’s discussion and analysis have emphasized the requirements in Item 303 of Regulation S-K and the related disclosure objectives, including a focus on:
Business combinations are a consistent area of focus for the SEC staff, with frequent comments related to:
The SEC staff has focused on the quality of the disclosure around significant judgments and estimates associated with goodwill and intangible assets, including impairment assessments, frequently commenting on:
The focus of the SEC staff’s comments on Internal Control over Financial Reporting (ICFR) has not changed significantly from prior years. They continue to focus on:
Debt, quasi-debt, warrants and equity securities continue to be a source of restatements and revisions due to errors in the application of the relevant guidance. The accounting for such items often include critical accounting estimates that require significant judgment. The SEC staff has focused on the transparency and quality of the disclosures around these judgments and estimates, frequently requesting:
Disclosures relating to a change in accounting principle, a change in estimate, and a correction of an error often receive attention in SEC staff comment letters. Comments request further quantitative and qualitative analysis on the accounting and disclosure judgments applied by management in these areas.
The SEC staff comments relating to accounting changes and errors asked registrants to provide:
Your disclosure indicates that you have concluded the effects of the correction of errors were not material individually or in the aggregate to your previously reported annual periods; however, it appears that the corrections had a material impact. Please provide a comprehensive analysis explaining how you determined these corrections were not material.
We note that your discussion references an "accounting adjustment." Please tell us the nature of these accounting adjustments including whether you changed accounting policies or corrected errors in accordance with ASC 250.
Regarding the accounting error you disclose in the notes to your consolidated financial statements, please provide us with a detailed explanation of how you considered the identification and correction of this error in your evaluation of internal control over financial reporting and disclosure controls and procedures. In doing so, please tell us how you evaluated the control deficiency(s) that led to this error, whether this control deficiency(s) posed a substantial risk of a material restatement, and the reason(s) for your conclusion.
SEC staff comments asked registrants to disclose quantitative and qualitative information about business knowingly conducted with state sponsors of terrorism. For all such business activity, the SEC staff has requested disclosure of:
The list of countries that are subject to US sanctions and/or are identified as state sponsors of terrorism is dynamic and subject to change. Registrants can reference the US Department of State and the Office of Foreign Assets Control websites for the most recent listing of such countries.
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