SEC comment letter trends for technology, media and telecommunications companies

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.

Non-GAAP measures

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:

  • Presentation with equal or greater prominence of the most directly comparable GAAP financial measure; 

  • Reconciliation to the most comparable GAAP financial measure;

  • Appropriateness of adjustments to eliminate or smooth items identified as non-recurring, infrequent or unusual; 

  • Use of individually tailored accounting principles; and 

  • Disclosure of why management believes the non-GAAP presentation provides useful information to investors regarding the financial condition or results of operations of the registrant.


  • You disclose non-GAAP measures without presenting the comparable GAAP measures with equal or greater prominence. Please ensure any discussion regarding non-GAAP measures is preceded by an equal or more prominent discussion of the comparable GAAP measure.

  • Please include a reconciliation of core earnings that begins with the most directly comparable GAAP measure. Your revised reconciliation should provide disaggregated disclosure of all the adjustments necessary to arrive at core earnings from the most directly comparable GAAP measure.

  • Your current disclosure discusses management’s use, but not how the presentation of the measure is useful to investors. Please revise your disclosure to include a discussion of investor’s use of these measures. Excluding amortization of acquired intangible assets may result in non-GAAP measures that are based on individually tailored accounting principles. Please tell us how you considered Question 100.04 of the Non-GAAP C&DIs and why you believe these measures are useful to investors.

Revenue recognition

ASC 606, Revenue from contracts with customers, requires more quantitative and qualitative disclosure than prior guidance. The following areas have been addressed in the SEC staff's comments:

  • Performance obligations – the nature of performance obligations, why goods or services are distinct, and disclosure of remaining performance obligations. Also, comments related to information provided in other parts of the filing that appear inconsistent with the number of performance obligations in a contract. 

  • Variable consideration – the determination of the transaction price and how a company estimates variable consideration.

  • Recognizing revenue – the timing of when control transfers, the method of recognizing revenue over time, and accounting for licensing arrangements.

  • Gross versus net presentation – judgments related to gross versus net presentation of revenue, including an assessment of whether the company controls the good or service being provided to the end customer.

  • Disaggregated revenue – disaggregation disclosures that appear inconsistent with information provided in other parts of the filing or in other forums, such as investor presentations.


  • You disclosed that user pay revenue has a single performance obligation. Please tell us the significant judgments used in determining that in-app purchase products should not be considered as a stand-alone performance obligation separated from subscriptions. Please refer to paragraphs 19 through 22 of ASC 606-10-25.

  • You indicate that your arrangements can include variable fees such as the option to purchase additional usage of a previously delivered software license. You also note that you include an estimate of these variable fees in the total transaction price based on expected purchase volumes. Please further explain the variable fees in these arrangements including how the additional usage is related to the delivered software license, how such fees are accounted for, as well as your consideration of the guidance in ASC 606-10-55-65. Lastly, tell us the amount of revenue recognized from these variable fees for each period presented.

  • We note that revenue from subscriptions is recognized over the subscription term. We further note that subscriptions are offered for a recurring monthly or annual fee. Please tell us whether these arrangements contain a license and, if so, how you determined that revenue for arrangements that extend beyond one month should be recognized over time.

  • Tell us how you determined that you act as agent for your production and media buying services. Please specifically address how you considered your role, if any, in creating or developing a client's marketing or corporate communications message. Refer to ASC 606-10-55-36 through 40 and ASC 606-10-50-12(c).

  • We note your presentation of disaggregated revenue by reportable segment and by location. With respect to the disclosure requirements of ASC 606-10-50-5, please tell us how you considered the guidance in paragraphs ASC 606-10-55-89 through 55-91 in selecting the appropriate categories to use to disaggregate revenue.

Management's discussion and analysis

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:

  • The discussion and analysis of results of operations, including the description and quantification of unusual or infrequent events or any significant economic changes, including the impacts of COVID-19;

  • Discussion of known trends or uncertainties, such as those related to COVID-19, that are reasonably expected to impact future results both in the near and long term;

  • Metrics used by management in assessing performance, including how they are calculated and period over period comparisons;

  • Critical accounting estimates, including the judgments made in the application of significant accounting policies, and the likelihood of materially different reported results if different assumptions or conditions were to prevail; and

  • Liquidity and capital resources, including clear discussion of drivers of cash flows and the trends and uncertainties related to meeting known or reasonably likely future cash requirements.


  • On your earnings call, you indicated that you currently anticipate the subsequent quarter revenue to be down as much as 50% with a significant portion of your global business having been closed since early April. Revise your future periodic filings to disclose known trends and uncertainties related to COVID-19. For example, disclose how you expect COVID-19 to impact your future operating results and near- and long-term financial condition and how that compares to the current period. See Item 303 of Regulation S-K, SEC Release No. 33-8350, and CF Disclosure Guidance Topic No. 9.
  • If two or more factors contribute to material changes in revenue, please provide disclosure demonstrating the relative magnitude of each factor, such as the percentage or dollar increase in revenue due to onboarding of new customers versus usage from existing customers. In this regard, it appears from your most recent earnings releases that such information is readily available. Refer to Item 303(a)(3)(iii) 303(a)(3)(iii) of Regulation S-K and Section III.D of SEC Release No. 33-6835.

  • Where a material change in a line item is attributed to two or more factors, including any offsetting factors, the contribution of each identified factor should be described in quantified terms, if reasonably practicable. Please revise your disclosures in future filings accordingly. Similar revisions should be considered throughout your results of operations disclosures, such as in your discussion of the change in research and development and selling, general and administrative expenses. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section III.D of SEC Release No. 33-6835.

  • We note your disclosure and quantification of capacity utilization. Please revise to describe how this measure is calculated and expand the discussion to include the underlying reasons for any significant fluctuations in the measure from period-to-period. Refer to Item 303(a)(3) of Regulation S-K.

  • Please provide information for investors to assess the probability of future goodwill impairment charges. For example, please disclose whether your reporting unit is at risk of failing step one of the quantitative impairment test or that the fair value of this reporting unit is substantially in excess of carrying value and is not at risk of failing step one. If the reporting unit is at risk of failing step one, you should disclose:  

    • the percentage by which fair value exceeded carrying value at the date of the most recent step one test;

    • the amount of goodwill allocated to the reporting unit;  

    • a detailed description of the methods and key assumptions used and how the key assumptions were determined; 

    • a discussion of the degree of uncertainty associated with the assumptions; and  

    • a description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions. 

  • Please describe for us the actuarial methods you utilize to estimate your reserve, including significant assumptions and changes therein and why you believe the methods and assumptions provide a reasonable estimate.

  • As it relates to your analysis of cash provided by operating activities, please quantify all variance factors cited pursuant to section 501.04 of staff's Codification of Financial Reporting so that investors may readily understand the magnitude of each. Also, please note citing factors such as operating results and changes in balance sheet items may not provide a sufficient basis to understand how operating cash between comparative periods was affected and varied. In this regard, supplement your analysis with the material drivers underlying the factors cited, as appropriate. Refer to section IV.B.1 of Release No. 33-8350 for guidance.

Segment reporting

SEC staff frequently question how registrants have identified operating segments and aggregated them into reportable segments, often due to events reported by companies in press releases or Form 8-K disclosures. SEC staff may expect to see changes in segments when the company has disclosed significant acquisitions or dispositions, changes in organizational structure, or changes in key personnel. To resolve segment questions, the SEC staff may request a copy of the reporting package utilized by the chief operating decision maker, or other documents, to evaluate its consistency with management’s reporting conclusions.

The lack of entity-wide information required to be disclosed under ASC 280 has also been highlighted by the SEC staff, Specifically, the SEC staff has focused on the required disclosures of:

  • Revenues from external customers for each group of similar products and services; and

  • Geographic disclosures of revenues from external customers and long-lived assets attributable to the public entity’s country of domicile and individual foreign countries that are material.


  • Given the disclosures about your core products as well as the impact on your gross margin driven by shifts in product mix, please expand your disclosure to include revenue for each group of similar products to comply with FASB ASC 280-10-50-40.

  • Please tell us in detail how you determined all of your operating segments or brands are properly aggregated into one reportable segment. Please be sure to address each of the aggregation criteria in ASC 280-10-50-11.

  • Please revise future filings to present separately revenues from external customers attributed to your country of domicile. Also, when material, separately disclose the revenues from external customers attributed to an individual foreign country. Refer to ASC 280-10-50-41(a).

Goodwill and other intangibles

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 identification of reporting units, including factors considered when multiple components have been combined into a single reporting unit due to economic similarities;

  • At risk reporting units, including information about the amount of goodwill and headroom at the reporting unit, discussion of the key assumptions used to determine the reporting unit’s fair value and their associated degrees of uncertainty, and a description of potential events or changes in circumstances, such as the COVID-19 pandemic, that could negatively affect the key assumptions;

  • Triggering events that may indicate that an interim impairment assessment is necessary; and

  • The timing of goodwill and intangible asset impairment charges.


  • We note your statement that your reporting units with goodwill are equivalent to your operating segments. Please tell us your operating segments and if your operating segments changed during the year. If you have aggregated any of your operating segments when determining your reportable segments, please revise the segment footnote in your financial statements to disclose that operating segments have been aggregated. See ASC 280-10-50-21(a). 

  • Please tell us how you considered the qualitative factors outlined in ASC 350-20-35-3C when performing your goodwill impairment analysis and clarify whether you performed a qualitative or quantitative assessment, or both. Also, tell us whether any of your reporting units are at risk of failing a quantitative analysis and if true, revise your critical accounting policies to disclose:

    • the percentage by which fair value exceeded carrying value as of the date of the most recent test;
    • the amount of goodwill allocated to the reporting unit; 
    • a discussion of the degree of uncertainty, which includes specifics to the extent possible, associated with key assumptions used in your analysis; and 
    • a description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.

If you have determined that estimated fair values substantially exceed the carrying values of your reporting units, please disclose such determination. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section V of SEC Release 33-8350.

  • We note your disclosure in your Form 10-K that as of the end of your fiscal year, the fair value of your goodwill exceeded the carrying value by a minimal amount. Your stock price has continued to decline and you recognized operating cash flow losses and operating losses during the first quarter. Additionally, we note significant decreases in total revenues for the first quarter of the current year compared to the prior year. Tell us how you considered whether these trends were considered to be a triggering event for an additional goodwill impairment analysis. Please refer to ASC 350-20-35-30.

Income taxes

Accounting for income taxes requires the application of significant judgment and the use of estimates. The SEC staff has focused on the quality of the disclosures around these judgments and estimates, frequently commenting on:

  • Effective tax rate reconciliations and uncertain tax positions (UTPs), including the nature of the reconciling items and UTPs, the drivers behind significant changes between periods, and whether those changes are expected to impact future periods; and

  • Valuation allowances, specifically when no valuation allowance was recorded despite clear negative evidence, when a full valuation allowance was recorded despite cumulative profitability, and the timing of a full or partial valuation allowance release.


  • In regard to your effective income tax reconciliations, please disclose and more fully explain to us the factors that resulted in significant changes in foreign income taxed at rates other than the US statutory rate and changes in valuation allowances during each period presented. 

  • Your disclosures indicate that you have recorded cumulative losses for the last three years domestically. We further note that you have recognized US Federal NOLs as deferred tax assets without a valuation allowance. Please provide us with your comprehensive analysis of the specific positive and negative evidence management evaluated in arriving at the conclusion that a valuation allowance is not needed.

  • Revise your discussions of income taxes to disclose the estimated annual effective tax rate used in computing your year-to-date provision for income taxes. Refer to ASC 740-270-25 and ASC 740-270-50.

  • In regard to your unrecognized tax benefits, please provide the disclosures specified in  ASC 740-10-50-15d and 740-10-50-15Ab.

Fair value measurement

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:

  • The valuation techniques and key inputs used to determine the fair value for each significant class of asset or liability, whether determined by management or a third party (e.g., independent pricing service).

  • The quantitative information provided for significant unobservable inputs used in Level 3 fair value measurements, including the sensitivity of the fair value measurement to changes in those significant unobservable inputs.


  • You indicate the securities included in Level 2 of the fair value hierarchy are valued utilizing inputs obtained from an independent pricing service. Please tell us what consideration was given to disclosing a description of the valuation techniques and inputs used in the fair value measurements. In addition, tell us what consideration you gave to separately disclosing the valuation techniques and inputs for each class of assets. We refer you to ASC 820-10-50-2 and ASC 820-10-50-2(bbb).

  • Please disclose quantitative information about the significant unobservable inputs used in developing the fair value of your Level 3 assets and liabilities. Also, tell us what consideration was given to providing a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs. Please refer to ASC 820-10-50-2(bbb) and (g).

  • Please tell us how you complied with the non-recurring fair value measurement disclosures related to the impairment charge, as required by ASC 820-10-50-2(a). Also refer to the example of these disclosures at ASC 820-10-55-100.

Debt, quasi-debt, warrants and equity

Debt, quasi-debt, warrants, and equity securities continue to be sources of restatements and revisions due to errors in the application of the relevant guidance. The accounting for such items often includes 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:

  • The registrant’s consideration of conversion and redemption options in determining debt or equity classification;
  • Support for the classification of financing transactions as extinguishments or modifications of debt; and
  • Expanded disclosures of the rights and privileges related to preferred stock and material terms of debt agreements.


  • Please disclose the nature of the redemption features related to the preferred shares and why amounts are not currently redeemable. Additionally, please disclose the features of the preferred shares that lead you to classify amounts as liabilities as opposed to equity.
  • Please tell us your consideration of providing a description of the accounting method used to adjust the redemption amount of the redeemable preferred stock for changes in the redemption value and disclosing (1) the redemption amount of the preferred stock as if it were currently redeemable and (2) the reasons why it is not probable that the preferred stock will become redeemable. Please refer to ASC 480-10-S99-24.

  • Revise future filings to provide all of the disclosures required by paragraphs 50-4 through 50-6 of ASC 470-20 for your convertible debt instruments that may be settled in cash. In this regard, revise to also describe the specific conversion features of each debt arrangement and discuss how the features and the host instrument are accounted for and valued in your financial statements.

  • We note that you extinguished debt plus accrued interest by issuing common shares to a related party. Please tell us whether you applied extinguishment accounting, and if so, please explain to us how you determined the reacquisition price of the debt. Please refer to ASC 470-50-40-2 and 40-3.

  • Please disclose the pertinent rights and privileges of the preferred stock, including dividend and liquidation preferences, participation rights, unusual voting rights and other terms. Please refer to ASC 505-10-50-3 through and 50-5.

Accounting changes and error corrections

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:

  • Additional information regarding management’s evaluation of materiality in accordance with SAB Topics 1.M and 1.N; and

  • Clarification regarding whether adjustments relate to a change in estimate or correction of an error.


  • With respect to the impact of the error on the current year we note qualitatively you do not expect it to be material to your profitability or trends in 2020. Please explain why the error is quantitatively immaterial to the current year in light of your guidance.

  • We note you recorded a non-cash out-of-period adjustment related to goodwill, which were related to an error in the calculation of goodwill impairments. Please provide us with your materiality assessment in accordance with ASC 250-10-S99-1 and S99-2 and explain to us why the error is considered immaterial to the prior year and the current year.

  • We note  you revised the required minimum payment percentage for purposes of determining delinquency statistics for receivables.Tell us (1) the reason for this change and how you considered whether it constituted a change in accounting policy or principle or a correction of an error under ASC 250; (2) whether you performed an analysis to evaluate the significance of this change to your delinquency statistics for prior periods and tell us the results of this analysis and (3) whether you evaluated the impact of this change to your allowance methodology.

Disclosure controls and ICFR

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:

  • The identification and disclosure of material weaknesses. Specifically, the SEC staff continues to question why a restatement or revision did not result in the reporting of a material weakness; 

  • Management’s disclosure around the effectiveness of ICFR and disclosure controls and procedures (DC&P). The SEC staff has questioned registrants when there is no explicit conclusion about the effectiveness of DC&P or when management has concluded that ICFR is ineffective while DC&P is effective; and 

  • Management’s documentation of the changes in ICFR that have materially affected, or are reasonably likely to materially affect the registrant’s ICFR as required by Item 308 of Regulation S-K. Such changes may include updates to internal controls made in the process of (a) remediating previously identified material weaknesses, (b) as a result of the integration of significant acquisitions, (c) due to the implementation of new information technology systems, or (d) implementation of a new accounting standard.


  • We note management concluded that your disclosure controls and procedures and internal control over financial reporting were effective as of the end of the period covered by your annual report. Given the fact that you have restated your previously issued financial statements due to errors, please tell us why you did not disclose that these restatements were indicative of a material weakness in your internal control over financial reporting to comply with Item 308(a)(3) of Regulation S-K, and tell us how your officers determined that your disclosure controls and procedures were effective despite such material weakness in your internal controls over financial reporting.

  • Your report states that during your assessment, “management identified no significant deficiencies;” however, your report does not include a statement as to whether or not your internal controls over financial reporting were effective as required by Item 308(a)(3) of Regulation S-K. Please revise management’s report accordingly.

  • Please revise your report to clarify which version, 1992 or 2013, of the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission’s Internal Control – Integrated Framework you utilized when performing your assessment of internal control over financial reporting. 

  • Please revise to disclose any change in your internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or reasonably likely to materially affect, your internal control over financial reporting. Refer to Item 308 (c) of Regulation S-K.

  • We note that management concluded that disclosure controls and procedures were effective as of the end of the fiscal year. We also note management's conclusion that disclosure controls and procedures were not effective as of your fiscal third quarter. The narrative in your Form 10-K, however, states that "during the fourth quarter, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting." Please explain to us how you determined there was a change in the effectiveness of your disclosure controls and procedures, from period-to-period, given that there were no changes in internal controls during your fiscal fourth quarter. 

Contact us

Kevin Healy

Kevin Healy

US TMT Industry Assurance Leader, PwC US

Ryan Spencer

Ryan Spencer

Partner, National Professional Services Group, PwC US

Brian Torchen

Brian Torchen

Partner, National Professional Services Group, PwC US

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