Frequent Topics for SEC Comment

Every year about this time various organizations compile surveys of, and provide analysis regarding, SEC comment letters issued during the recent year. This can be a useful predictor of hot topics for the coming year and provides helpful guidance for company disclosures going forward.

Perhaps even more helpful is the SEC staff’s own list of review and comment priorities. At the 48th Annual Institute on Securities Regulation in New York late last year, a panel that included Wesley Bricker, Chief Accountant of the Office of the Chief Accountant, and Mark Kronforst, Chief Accountant of the Division of Corporation Finance, provided exactly that. The following items are transcribed verbatim from a slide entitled “Frequent Areas of SEC Comment” and provided to conference attendees:

  • MD&A: Results of operations
  • Non-GAAP measures
  • Revenue recognition
  • Fair value
  • MD&A: Liquidity
  • Income taxes
  • Contingencies
  • Cash flow statements
  • MD&A: Critical accounting policies
  • Segment reporting
  • Intangible assets and goodwill
  • Debt, warrants, equity securities

None of these topics should come as a great surprise since most have been SEC staff hot buttons for years. It is noteworthy that “MD&A: Results of operations” leads the list, which is consistent with the staff’s longstanding admonition for companies to thoroughly and clearly tell their story, including material known trends and uncertainties. “Non-GAAP measures” follows next, which also is no surprise in light of the staff’s May 2016 guidance on that topic (see this Doug’s Note). Most interesting to me is the continuing emphasis on fair value accounting, including valuation techniques, measurement sensitivities, categorization of assets and liabilities and third-party pricing. I had assumed that this was a relatively settled area of disclosure, but apparently there is more comment-inducing subjectivity than I realized.

In any case, it is good to keep these topics in the forefront as you draft and review disclosures in the coming year. Doing so could minimize protracted and expensive back and forth with the staff, as well as potential delays in time-sensitive capital markets transactions.

All the best,

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