Update for Public Companies: The Latest From the SEC · Update for Public Companies: The Latest...
Transcript of Update for Public Companies: The Latest From the SEC · Update for Public Companies: The Latest...
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Update for Public Companies: The Latest From the SECBy Sydney K. Garmong, CPA, and Brad A. Davidson, CPA
Audit | Tax | Advisory | Risk | Performance
August 2012
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For companies registered with the U.S. Securities and Exchange Commission (SEC), understanding the landscape, including the SEC’s agenda, is important. Following is a recap of recent developments and other topics that are on the minds of the staff at the SEC. Topics range from big-picture issues such as the convergence of international and U.S. accounting and financial reporting standards to specific technical matters.
Table of Contents
The Big Picture ..............................................................................................3
■ International Convergence ...................................................................................... 3
■ Dodd-Frank Developments ..................................................................................... 4
■ Changes in the SEC’s Office of the Chief Accountant ............................................ 4
■ The JOBS Act ........................................................................................................ 4
Staff Perspectives .........................................................................................8
■ Non-GAAP Financial Measures .............................................................................. 8
■ Financial Reporting Manual .................................................................................... 8
■ Corp Fin Disclosure Guidance ................................................................................ 9
■ Presentation on Common Financial Reporting Issues Facing Smaller Issuers ...... 9
■ Key Technical Areas................................................................................................ 9
Financial Institutions Focus .........................................................................10
■ Guidance From the SEC: Disclosures for Smaller Financial Institutions ................ 10
Appendix: Responding to Comment Letters ...............................................12
■ The Comment Letter Process ................................................................................. 12
■ Best Practices for Resolution of Comments .......................................................... 12
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Update for Public Companies: The Latest From the SEC
The Big PictureInternational ConvergenceKnowing the first possible date that U.S. registrants would be permitted or required to file their financial statements using International Financial Reporting Standards (IFRS) is of high interest to registrants, investors, auditors, and other stakeholders. International convergence has been on the SEC’s agenda for a number of years. On Nov. 14, 2008, the SEC issued a proposal, “Roadmap for the Potential Use of Financial Statements Prepared in Accordance With International Financial Reporting Standards by U.S. Issuers,” for public comment. The SEC followed up on Feb. 24, 2010, with a statement, “Commission Statement in Support of Convergence and Global Accounting Standards.” As an appendix to the statement, the SEC also issued its staff work plan, “Work Plan for the Consideration of Incorporating International Financial Reporting Standards Into the Financial Reporting System for U.S. Issuers.” Since that time, the staff has released several progress reports, including one seeking comment on the “condorsement”1 approach. In July 2011, the SEC also held a roundtable to seek input from stakeholders.
During the 2011 American Institute of Certified Public Accountants (AICPA) National Conference on Current SEC and Public Company Accounting Oversight Board (PCAOB) Developments (AICPA SEC Conference), which was held in Washington, D.C., in early December 2011, the SEC’s chief accountant, James Kroeker, discussed convergence in his prepared remarks and indicated that the SEC needs a few more months to study this issue. He also mentioned that the staff recently completed its fieldwork and has issued two new releases: a comparison of U.S. generally accepted accounting principles (GAAP) to IFRS and a study of other countries’ practices in adopting IFRS.
Another noteworthy development is that on Nov. 15, 2011, the Financial Accounting Foundation (FAF), which is the governing organization of the Financial Accounting Standards Board (FASB), sent a proposed recommendation to the SEC for its consideration. Leslie Seidman, the current chair of the FASB, covered the FAF recommendation during her prepared remarks at the 2011 AICPA SEC Conference.
On July 13, 2012, the SEC’s Office of the Chief Accountant (OCA) published its final staff report, “Work Plan for the Consideration of Incorporating International Financial Reporting Standards Into the Financial Reporting System for U.S. Issuers.” The report summarizes the observations and analyses in the six areas identified for study in the February 2010 original work plan of the same name. The areas are:
1. Sufficient development and application of IFRS for the U.S. domestic reporting system;
2. The independence of standard setting for the benefit of investors;
3. Investor understanding and education regarding IFRS;
4. Examination of the U.S. regulatory environment that would be affected by a change in accounting standards;
5. The impact on issuers, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and
6. Human capital readiness.
The publication of the staff report does not mean that the SEC has made any policy decision about whether IFRS should be incorporated for U.S. issuers or how any such incorporation, if it were to occur, should be implemented. Additional analysis and consideration of this threshold policy question is necessary before the SEC can make a decision concerning the incorporation of IFRS into the financial reporting system for U.S. issuers.
In a July 15, 2012, press release, the IFRS Foundation, which oversees the International Accounting Standards Board (IASB), expressed disappointment that an action plan did not accompany the staff report.
Additional information – including proposals, statements, staff progress reports, and staff papers – is available on an area of the SEC’s website called Spotlight on Work Plan for Global Accounting Standards.
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Dodd-Frank DevelopmentsThe Progress So Far
After a lengthy and complex legislative process to reform the financial services regulatory structure in the United States, President Barack Obama signed the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) into law on July 21, 2010. The act contains more than 90 provisions that require SEC rulemaking and dozens of other provisions that give the SEC discretionary rulemaking authority. The SEC has proposed or adopted rules for about three-quarters of the mandatory rulemaking provisions. Because the act focuses on consumer protection and comprehensive regulation of financial markets, most of the provisions of the act do not have direct financial reporting implications.
Final Rule on Listing Standards for Compensation Committees
One area of interest for registrants is the forthcoming requirements, from the exchanges, for compensation committees. The SEC has issued a final rule, “Listing Standards for Compensation Committees.” As a result of the new rule, required by the Dodd-Frank Act, the listing standards of exchanges must address:
■ The independence of the members of a compensation committee;
■ The committee’s authority to retain compensation advisers;
■ The committee’s consideration of the independence of any compensation advisers; and
■ The committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation adviser.
Proxy disclosure rules were also amended to require new disclosures by companies about their use of compensation consultants and conflicts of interest. The new rules took effect on July 27, 2012. Each national securities exchange and national securities association must provide to the SEC, no later than Sept. 25, 2012, proposed rule change submissions, and it must have those listing standards approved by the SEC no later than June 27, 2013.
Small-Entity Guide Published on Listing Standards for Compensation Committees
The SEC has published a compliance guide for small entities, “Listing Standards for Compensation Committees and Disclosure Regarding Compensation Consultant Conflicts of Interest.” The guide summarizes and explains a new rule and the changes to proxy disclosure rules that the SEC adopted in order to implement Section 952 of the Dodd-Frank Act. The guide includes discussions of rules for disclosures related to conflicts of interest of compensation committees and exchange listing requirements for compensation committees.
Changes in the SEC’s Office of the Chief AccountantOn June 20, 2012, the SEC announced that Chief Accountant James Kroeker was leaving the commission to enter the private sector. Mr. Kroeker joined the SEC in 2007 as deputy chief accountant and, as the chief accountant since January 2009, had been responsible for overseeing accounting interpretations, international accounting matters, and professional practice issues.
The SEC announced on July 16, 2012, that Paul Beswick had been named the acting chief accountant. Since joining the SEC in September 2007, Mr. Beswick has held several positions in the OCA. Most recently, as deputy chief accountant, he was responsible for the day-to-day operations of the OCA’s accounting group, including resolution of accounting practice issues, rulemaking, and oversight of private-sector standard-setting efforts.
The JOBS Act The Jumpstart Our Business Startups Act (JOBS Act), signed into law on April 5, 2012, is intended to improve smaller companies’ access to the public capital markets. Title I of the JOBS Act creates a new category of issuer – an “emerging growth company”
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(EGC), which is an issuer with less than $1 billion in total revenues (indexed for inflation by the SEC every five years). The issuer continues to be an EGC until the earliest of its fifth anniversary of its initial public offering (IPO), its revenues reach or exceed $1 billion, it becomes a large accelerated filer (defined by SEC as public float of $700 million or more), or it has issued more than $1 billion in nonconvertible debt over the previous three years.
As a result of the JOBS Act, EGCs are permitted to:
■ Submit certain registration statements for staff review on a confidential basis;
■ Prepare an IPO registration statement with only two years of audited financial statements;
■ Omit selected financial data for periods preceding the earliest audited period;
■ Comply with the SEC’s detailed executive compensation disclosures on the same basis as a smaller reporting company; and
■ Adopt any new or updated accounting standards using the same time frame applicable to private companies.
In addition, an EGC is not required to comply with internal control auditor attestation requirements of SOX Section 404(b).
The SEC’s Division of Corporation Finance (Corp Fin) has issued several frequently asked questions (FAQs) related to the JOBS Act, including2:
■ “Changes to the Requirements for Exchange Act Registration and Deregistration”
■ “Confidential Submission Process for Emerging Growth Companies”
■ “Generally Applicable Questions on Title I of the JOBS Act”
Registration and Deregistration
The JOBS Act also increases the threshold of shareholders requiring registration of securities or permitting deregistration under the Securities Exchange Act of 1934 (Exchange Act). For issuers other than banks and bank holding companies, the threshold for registration has been raised from 500 or more persons to either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors as defined by the SEC. For banks and bank holding companies, the threshold increased from 500 to 2,000 for requiring registration and increased from 300 to 1,200 for permitting deregistration. The Corp Fin FAQ called “Changes to the Requirements for Exchange Act Registration and Deregistration” provides guidance on registration and deregistration.
Confidential Submission
The JOBS Act added a provision to the Securities Act of 1933 (Securities Act) that an EGC may confidentially submit to the SEC a draft registration statement for confidential nonpublic review. The Corp Fin FAQ “Confidential Submission Process for Emerging Growth Companies” provides guidance on the confidential submission process.
Although Section 6(e) of the Securities Act does not specify what needs to be included in a draft registration statement, the SEC staff expects draft registration statements to be substantially complete when initially submitted. As discussed in Question 7 of the FAQ, completion specifies a signed audit report of the registered public accounting firm covering the fiscal years presented in the registration statement as well as exhibits.
The Corp Fin staff recently indicated that it has been able to review, within the 30-day time frame it had targeted, all confidential submissions of draft registration statements that were substantially complete when submitted. The staff has observed situations in which a company did not qualify as an EGC. The staff has also encountered initial filings that were not substantially complete upon submission. In such cases, the staff promptly contacts the company to inform them that the Corp Fin review is deferred until a substantially complete submission is made.
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An area of the SEC’s website, “Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act – Accomplishments,” is dedicated to the act. The SEC has categorized the provisions. Following are the categories, along with some of the major issuances in each category3:
Category Actions
Administrative/ Internal
■ Issued a report and certification to Congress on the SEC’s internal supervisory controls
■ Issued three reports to Congress about recommendations from independent consultants and actions to implement changes to the SEC organization and operations
■ Established the Office of Minority and Women Inclusion
Asset-Backed Securities (ABS)
■ Adopted rules on the responsibilities of ABS issuers to conduct and disclose a review of the assets
■ Adopted rules on the use of representations and warranties in ABS markets
■ Proposed rules on risk retention by ABS securitizers
■ Proposed rules on prohibition of material conflicts of interest
Auditing
■ Issued a report to Congress on costs to smaller issuers (with market capitalization between $75 million and $250 million) for complying with §404(b) of the Sarbanes-Oxley Act of 2002 (SOX)
■ Adopted rules to exempt nonaccelerated filers from §404(b)
■ Issued interpretive guidance on applicable auditing standards for broker-dealer audits
Clearing and Settlement
■ Issued a report to Congress on improving the common framework for designated clearing entity risk management
■ Proposed rules on systemically important clearing agencies
Corporate Governance and Disclosure
■ Adopted rules on shareholder approval of executive compensation and golden-parachute compensation arrangements
■ Adopted rule on exchange listing standards for compensation committees
■ Proposed rules on conflict minerals disclosures
Credit Ratings
■ Established the Office of Credit Ratings
■ Proposed rules for nationally recognized statistical rating organizations (NRSRO) to report on internal controls over the ratings process, prevent sales and marketing activities from influencing the production of ratings, provide a report to the SEC and “look-back” when an entity subject to a rating employs a person who previously has worked for the NRSRO – in order to require transparency of NRSRO ratings performance, to require credit ratings procedures and methodologies, and for third-party certifications
■ Published an annual report summarizing NRSRO inspections, findings, and responses
Derivatives
■ Adopted rules about mandatory clearing of security-based swaps
■ Proposed rules for the registration and regulation of security-based swap dealers and major security-based swap participants
■ Proposed rules to establish external business conduct standards for security-based swap dealers and major security-based swap participants
■ Proposed rules to establish standards for operation and governance for security-based swaps clearing agencies
■ Issued a report to Congress on a review of existing references to credit ratings in statutes and regulations
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An area of the SEC’s website, “Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act – Accomplishments,” is dedicated to the act. The SEC has categorized the provisions. Following are the categories, along with some of the major issuances in each category3:
Category Actions
Derivatives (continued)
■ Proposed rules about the registration and regulation of security-based swap execution facilities (SEFs)
■ Proposed rules on security-based swap reporting
■ Proposed rules to mitigate conflicts of interest involving security-based swaps
■ Issued a report to Congress on a study concerning the feasibility of the derivatives industry of adopting standardized computer-readable algorithmic descriptions
Diversity ■ Issued a report to Congress on the activities of the Office of Minority and Women Inclusion
Enforcement
■ Established the Office of the Whistleblower
■ Adopted rules to implement a whistleblower incentives and protection program
■ Issued a report to Congress on whistleblower incentives and protection program
Exempt Offerings ■ Adopted rules to revise the “accredited investor” standard
International ■ Issued a report to Congress on how swaps are regulated
■ Issued a study to Congress on the cross-border scope of private right of action under Section 10(b) of the Securities Exchange Act of 1934
Investor Advocate ■ Established a new Investor Advisory Committee
Market Oversight
■ Proposed rules to prohibit proprietary trading and certain relationships with hedge funds and private equity funds
■ Requested public input on a study of financial literacy and investor education efforts
■ Proposed rules about the disclosure and prohibitions of certain executive compensation structures and arrangements at certain financial institutions
Municipal Securities
■ Approved changes in the standards of conduct of municipal underwriters
■ Proposed rule requiring municipal advisers to register with the SEC
Oversight of Investment Advisers and Broker-Dealers
■ Implemented recommendations contained in a study on ways to improve access of investors to registration information about investment advisers and broker-dealers
■ Issued rules and guidelines to help prevent identity theft
■ Adopted rules requiring advisers to hedge funds and other private funds to report information for use in monitoring systemic financial risk
■ Proposed rules to raise certain dollar thresholds that need to be met before investment advisers can charge their clients performance fees
■ Completed a study of ways to improve investor access to information about investment advisers and broker-dealers
■ Issued a report to Congress about the study of the obligations of brokers, dealers, and investment advisers
■ Issued a report to Congress about the need for enhanced resources for investment adviser examinations and enforcement
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Staff PerspectivesNon-GAAP Financial MeasuresThe SEC staff understands that non-GAAP financial measures can be useful in some circumstances. The SEC’s rules and interpretations do not require registrants to present non-GAAP financial measures; nor do they prohibit them unless they are used in a misleading manner. At the 2011 AICPA SEC Conference, the staff indicated an increase in the use of potentially misleading non-GAAP financial measures, such as backing out recurring cash operating expenses to arrive at a profit measure or backing out the largest expense(s) necessary to generate a registrant’s revenues. Press releases, analyst calls, periodic filings, and other presentations should not include potentially misleading non-GAAP measures.
Additional guidance on this topic is available in Corp Fin’s “Compliance and Disclosure Interpretations,4” including “Non-GAAP Financial Measures,” originally issued in January 2010 and updated periodically; and “Conditions for Use of Non-GAAP Financial Measures,” a final rule issued by the SEC in January 2003.
The SEC staff has observed a recent increase in non-GAAP financial measures related to pension-plan expense. Some companies have changed their method of accounting for pension-plan investments to immediately recognize gains and losses attributable to fair value of plan assets. These companies have included a non-GAAP measure to remove the actual gain or loss from the performance measure and included the expected long-term rate of return but did not clearly disclose why the non-GAAP measure is important for an investor. Sometime companies that have not adopted the immediate recognition method of gains and losses in defined-benefit pension or other plans present non-GAAP financial measures that remove the non-cash pension expenses from GAAP results but do not clearly disclose what “non-cash” means. Without proper disclosure, both of these examples could cause investor confusion. Former chief accountant James Kroeker covered this topic during his remarks at Baruch College’s 11th Annual Financial Reporting Conference held in New York on May 3, 2012.
Financial Reporting ManualCorp Fin maintains a manual that can be a useful reference. The 359-page “Financial Reporting Manual” (FRM),5 was updated most recently to reflect changes through March 31, 2012. The FRM is intended as an internal reference document for the SEC staff, but preparers and others might find it a useful source of information about financial reporting matters. The manual, which is updated quarterly, can be found in the Financial Reporting Manual area of the SEC’s website. The most recent updates to the FRM are listed on page 2 of the manual.
One of the recent updates addresses implementation of Accounting Standards Update (ASU) 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” In the FRM’s latest edition, the staff indicates that entities can present a total for comprehensive income in condensed financial statements of interim periods either in a single continuous statement or in two consecutive statements. For annual financial statements, comprehensive income can be presented either in a single continuous financial statement with the income statement or in two separate but consecutive financial statements. An entity reporting comprehensive income in a single continuous statement must present its components in two sections: net income and other comprehensive income (Accounting Standards Codification 220-10-45-1 and 1A).
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Corp Fin Disclosure GuidanceIn 2011, Corp Fin started to issue guidance in the form of disclosure guidance topics. In 2012, so far there have been two new releases:
■ Topic No. 4: “European Sovereign Debt Exposures”
■ Topic No. 5: “Staff Observations Regarding Disclosures of Smaller Financial Institutions”
This guidance is available in the Disclosure Guidance area of the SEC’s website. Topic No. 5 is further discussed later in this update, in the “Financial Institutions Focus” section.
Presentation on Common Financial Reporting Issues Facing Smaller IssuersThe staff of Corp Fin has published its slides from its presentation titled “SEC CF Staff Review of Common Financial Reporting Issues Facing Smaller Issuers.” The slides, posted on Feb. 9, 2012, are from the nine forums on “Auditing in the Small Business Environment” hosted by the PCAOB in 2011. The slides are accompanied by detailed notes that provide additional context.
In addition to serving as an overview of Corp Fin developments, the presentation covers areas of frequent comment encountered when the Corp Fin staff reviews filings for smaller registrants. Included are topics relating to Management’s Discussion and Analysis (MD&A), reverse mergers and “backdoor” registrations, business combinations, predecessor financial statements, equity transactions, embedded conversion options and freestanding warrants, disclosure controls and procedures, internal control over financial reporting, and Form 8-K.
Key Technical AreasDuring the 2011 AICPA SEC Conference, the staff covered several technical areas that continue to be relevant. We refer readers to our prior update6 for the following topics:
■ Error corrections and reclassifications
■ Estimating the fair value of securities
■ Loss contingency disclosures
■ Liquidity
■ Deferred tax assets
■ Goodwill impairment
■ Pension and other post-employment benefit (OPEB) plans
■ Segment reporting
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Financial Institutions FocusGuidance From the SEC: Disclosures for Smaller Financial InstitutionsThe staff of Corp Fin issued important guidance for smaller financial institutions on April 20, 2012. The SEC staff frequently issues comments on topics that affect MD&A and accounting policy disclosures. The guidance, “Staff Observations Regarding Disclosures of Smaller Financial Institutions,” summarizes the staff’s observations in order to assist smaller financial institutions with enhancing the disclosure in their periodic reports (Forms 10-Q and 10-K).
Readers may recall that the SEC has issued guidance previously, in the form of a slide presentation, first in December 2009 and again in December 2010. During the 2011 AICPA SEC Conference, the SEC staff signaled its intention to provide updated information for smaller financial institution registrants.
The April 2012 guidance covers the following areas:
■ Asset quality/loan accounting issues
Allowance for loan losses
Charge-off and nonaccrual policies
Commercial real estate
Loans measured for impairment based on collateral value
Credit risk concentrations
Troubled debt restructurings (TDRs) and modifications
Other real estate owned
■ Deferred taxes
■ Federal Deposit Insurance Corporation (FDIC)-assisted transactions
For each area, the guidance provides staff observations and suggestions for enhanced disclosure. Most of the guidance focuses on asset quality and loan accounting issues. Much of that guidance is similar to previously issued guidance, a fact that suggests that the staff continues to find deficiencies in the disclosures.
Following are a few of the significant recent additions.
Asset Quality/Loan Accounting Issues
Allowance for loan losses. For loans that are not evaluated individually, the allowance typically is calculated based on historical loss rate. The staff has added the following to the list of items it may ask registrants to address if that component of the allowance is significant:
■ “Discuss how qualitative and environmental factors are considered in their methodologies (e.g. as an adjustment to historical loss rates or as a separate adjustment to the allowance, etc.) and how such factors are reflected in the allowance.”
■ “Quantify any portion of the allowance for non-impaired loans that they do not calculate by applying historical or adjusted historical loss rates, describe how they calculate the associated allowance, including why they do not use historical or adjusted historical loss rates, and explain the reasons for any changes in the calculation during the period.”
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Charge-off and nonaccrual policies. If a registrant has a material amount of loans on nonaccrual status or charged off in a period, the staff may ask for more information on charge-off and nonaccrual policies, particularly when the registrant’s disclosure states only that the policies comply with bank regulatory requirements. For example, the staff has added the following to the list of items it may ask registrants to address:
■ “Disclose the relevant thresholds they use to place loans on nonaccrual status or charge off past-due loans.”
■ “Explain why a loan was not charged off at a specific past-due threshold, including the specific factors they considered in reaching that conclusion.”
TDRs and modifications. Some registrants may remove loans from their TDR Guide 3 disclosures in certain circumstances. For such removed loans, the staff may ask registrants to:
■ “Discuss the circumstances under which they would remove loans from their TDR disclosures.”
■ “Quantify the amount of loans removed.”
■ “Provide a roll-forward of TDRs, if necessary to provide a transparent analysis of TDR activity.”
Deferred Taxes
For registrants that (1) have material deferred tax assets for which a valuation allowance has not been recorded and (2) have experienced cumulative losses in recent years, the staff has added the following to the list of items it may ask the registrant to explain:
■ “Why it believes projections of future income are sufficient to overcome the significant negative evidence of cumulative losses in recent years.”
■ “Why it believes it is appropriate to exclude items such as loan loss provisions when it evaluates whether it has experienced cumulative losses in recent years.”
FDIC-Assisted Transactions
For registrants that have acquired material assets through FDIC-assisted transactions, the staff has added the following to the list of items related to loss-sharing agreements. Registrants may be asked to:
■ “Disclose their accounting policies for any indemnification assets arising from loss-sharing agreements when changes to expected cash flows occur.”
■ “Disclose how changes in expected cash flows on the loans subject to the loss-sharing agreement are presented in the income statement in relation to the provision for loan losses, interest income, and non-interest income.”
■ “Include the assets subject to the loss-sharing agreement in their Guide 3 disclosures, with separate footnotes highlighting the special nature of the assets. Alternatively, these assets could be presented separately within the Guide 3 disclosures.”
While these disclosures are in addition to those provided in previous documents, we encourage registrants to review the full Corp Fin release, particularly because the staff continues to issue comments on these topics. Although this guidance is written to assist smaller financial institution registrants, it might be useful for all financial institution registrants to review their disclosures in light of the content of this document.
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Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction. © 2012 Crowe Horwath LLP
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Contact InformationSydney Garmong Partner 202.333.0375 [email protected]
Brad Davidson Partner 317.706.2635 [email protected]
1 In general, the “condorsement” approach is a combination of the convergence and endorsement approaches. Under the convergence approach, a country maintains its own standard setter and seeks to converge its standards with IFRS over time. Far more prevalent is the endorsement approach, under which a country either adopts standards as issued by the IFRS or has an established due diligence process for each standard the IASB issues.
2 SEC, Jumpstart Our Business Startups (JOBS) Act, “Frequently Asked Questions,” April – May 2012, http://www.sec.gov/spotlight/jobs-act.shtml
3 SEC, “Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act – Accomplishments,” http://www.sec.gov/spotlight/dodd-frank/accomplishments.shtml
4 SEC Division of Corporation Finance, “Compliance and Disclosure Interpretations,” http://www.sec.gov/divisions/corpfin/cfguidance.shtml
5 SEC Division of Corporation Finance, Financial Reporting Manual, updated March 31, 2012, http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.shtml
6 Sydney K. Garmong and Brad A. Davidson, “Update for Public Companies: The Latest From the SEC,” Crowe Horwath LLP, February 2012, http://www.crowehorwath.com/folio-pdf/ASR12946_SECUpdate_lo.pdf
Appendix: Responding to Comment LettersThe Comment Letter ProcessCorp Fin has set a goal of releasing staff comment letters and registrant responses no longer than 20 business days after the comment letter process is closed. The previous time frame was 45 days.
Corp Fin now sends comment letters to registrants via email. The SEC first calls the contact person (the chief accounting officer or chief financial officer, for example) listed on the face of the registrant’s periodic filing to make sure that the emailed letter goes to the intended recipient. The staff requests that registrants keep their email address information up-to-date.
Best Practices for Resolution of CommentsDuring the 2011 AICPA SEC Conference, the staff outlined the 10 best practices for registrants to follow for resolving comment letter issues. Registrants should:
1. File their responses on the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). Registrants may request confidential treatment of certain portions of their response but not the entire letter.
2. Recognize that amendments to prior filings are not always required. The SEC staff’s intent is to learn more about a disclosure matter and start a dialogue with management. In some cases, no change is necessary or can be made in future filings. Registrants should contact the staff if uncertain whether an amendment is being requested.
3. Document significant accounting decisions contemporaneously. This documentation should help with preparing a response to the SEC’s questions.
4. Keep EDGAR contact information current.
5. Not copy and paste responses using letters from other registrants. Responses are to be tailored to the specific facts and circumstances of the registrant.
6. Respond promptly. If registrants need an extension beyond the standard 10 business days, they should call the SEC to request the extension.
7. Involve their independent accountants in the response process if the comment is accounting related.
8. Use all available SEC resources. Keep current on financial reporting and SEC filing requirements.
9. Make the first response the best (last) response.
10. Call the SEC staff, starting with the staff person(s) listed in the SEC’s comment letter, if a comment is not understood. If the matter to discuss is significant, the call should be scheduled in advance so that the staff can involve the appropriate subject-matter experts.