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Recent SEC Comment Letter Trends

    Client Alerts
  • November 27, 2017

In January, I passed along a list of 12 review and comment priorities distributed at the 48th Annual Institute on Securities Regulation in New York by a panel of speakers that included SEC Chief Accountant Wesley Bricker and Chief Accountant of the Division of Corporation Finance Mark Kronforst (see this Doug’s Note). I won’t repeat the panel’s list here except to note that “MD&A: Results of operations” was at the top, followed next by “Non-GAAP measures.”

Lists like this can be useful predictors of hot topics for the coming year and provide helpful guidance for company disclosures. I, therefore, read with interest Deloitte’s recently released, comprehensive 2017 survey of SEC comment letters. The survey contains much valuable information regarding, and analysis of, the SEC staff’s strategic priorities, as gleaned from their recent comment letters. Below are a few items that jumped out at me.

Top 10 review topics.

Here is Deloitte’s list of the top 10 review topics for the 12 months ended July 31, 2017, which not coincidentally corresponds closely to the panel’s list mentioned above.

  • Non-GAAP measures
  • MD&A
  • Fair value
  • Segment reporting
  • Revenue recognition
  • Intangible assets and goodwill
  • Income taxes
  • State sponsors of terrorism
  • Signatures, exhibits and agreements
  • Acquisitions, mergers and business combinations

Other Deloitte survey tidbits.

  • The staff reviewed approximately 56% of public companies during the SEC’s 2016 fiscal year and more than 50% per year since 2013. (Note that not all reviews result in a comment letter.)
  • The number of reviews with comment letters and number of comments per letter have been trending downward over the past five years.
  • The number of filed Forms 10-K has decreased by approximately 15% since 2013, which is consistent with the overall decline in IPOs and foreign private issuers, as well as the increase in de-registration/going private transactions.
  • On average, it takes 38 days to complete a review, which is down significantly from 62 days in 2013, with more than 80% completed within 60 days (compared to 66% in 2013).
  • Generally speaking, the number of reviews resulting in comment letters is higher among large accelerated filers, as compared to other filing categories. For example, LAFs were subject to approximately 56% of reviews with comment letters over the past five years, although they account for only 29% of filed Forms 10-K. There is a similar correlation between revenue size and reviews with comment letters.

As always, it is wise to keep these topics and trends in the forefront as you draft and review disclosures in the coming year. Doing so should help minimize protracted back and forth with the SEC staff, which can be expensive and could delay time-sensitive capital markets transactions.