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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(4/1/2018 – 3/31/2019)*
|Relative change in number of letters compared to the Prior Period*|
|2||Fair value measurement||Flat|
|4||Terrorist nation sponsor reporting
|5||Management's discussion and analysis||Down|
|6||Goodwill and other intangibles||Flat|
|8||Liabilities and accrual estimates||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 March 31, 2019 ("Current Period") and the 12 months ended March 31, 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 220 and 310, 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:
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.
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:
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.
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 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:
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:
The SEC staff comments for liabilities, payables, and accrual estimates focused on:
The disclosure of restructuring charges and the related liabilities;
The nature of the accounts payable balance and the appropriate disclosure of components of such balance;
How the company determined that netting of receivables and liabilities was appropriate;
The amount of contingent consideration recognized, including where that amount was reflected in the financial statements; and
The accounting literature referenced to either include or exclude a liability from the accounting records.
Revise the disclosures of your restructuring activities in future filings to also provide the information required by ASC 420-10-50-1(a), (b), and (d).
Please separately disclose, either on your balance sheet or in your footnotes, any elements of accounts payable and other accrued payables that exceed 5% of total current liabilities or explain to us why it is not required. Refer to Rule 5-02(20) of Regulation S-X.
Please tell us how you determined it was not necessary to record a liability as of the period end date. Within your response, please reference the authoritative accounting literature management relied upon.
We note that you have recorded a liability for a call right. Please tell us the authoritative accounting literature management relied upon to account for this call right.
Please provide the legal opinion that supports your view that you have been released from the liabilities related to the agreement.
We note your disclosure that you evaluate where partial insurance coverage exists in determining the net expected liability to the Company. Please explain to us how you determined that offsetting such amounts is appropriate and complies with ASC 210-20-45-1.
In future filings please disclose, as required by ASC 805-30-50-1(c), the amount of contingent consideration recognized as of the acquisition date and an estimate of the range of outcomes (undiscounted) or, if a range cannot be estimated, that fact and the reasons why you cannot estimate a range.
Business combinations are a consistent area of focus for the SEC staff, with frequent comments related to:
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. Required disclosures include: