What the SEC Wants You to Know
What the Chief Accountant Wants You to Know
Five Takeaways from the Q3 National Meeting
Lindsay McCord, Chief Accountant for SEC’s Division of Corporation Finance
Robert Telewicz, Accounting Branch Chief in the SEC’s Office of Real Estate and Commodities
We could have talked all afternoon with the SEC’s Lindsay McCord and Bob Telewicz. They came to the table ready for candid conversation about SEC Pro Group members’ questions. We heard first-hand about the SEC’s focus areas when reviewing disclosures and how to best work with the SEC on disclosure questions.
1. Rulemaking is a very public process.
A rulemaking proposal is step one in a very public rulemaking process. Twice a year the Unified Agenda and Regulatory Plan publishes intended rulemaking actions in development throughout the Federal government. The Spring 2021 agenda was published in early June and contains the proposed final SEC rulemaking areas that SEC Chairman Gensler has set for the next year. Disclosures related to climate risk, workplace diversity, human capital, board diversity, and cyber risk are all on that agenda.
2. Public comment is part of the rulemaking process.
Lindsay McCord couldn’t stress enough the importance of participating in the public comment process. When the SEC makes a request for public comment on a concept release or a new rule proposal, the invitation is open to anyone. Many commenters include organizations, like the SEC Professionals Group, which commented on the recent changes to auditor independence requirements. Comments are published without revision or editing by the SEC and are posted on the SEC’s comment page website almost immediately upon receipt. You can limit your comments to the questions you object to or support. The SEC takes all comments into consideration and demonstrates this by addressing public comments in the new rule release.
3. Don’t wait for the adopting release to get prepared for ESG reporting.
Practitioners are expecting ESG reporting to be a dramatic shift in the disclosure landscape. The SEC’s response was to the point: don’t wait for the adopting release, especially for something as big as climate risk disclosure.
The SEC’s advice: Once it gets issued, study the proposal release and get your arms around what the commission is recommending for ESG disclosure. Sooner rather than later, start thinking through the data you will need and how you will obtain the data. It’s never too early to start planning the processes, people, technology, or controls you need to put in place to prepare for the ultimate day when you will be required to start disclosing. Also, if you disagree with the SEC, make your case through the public comment process.
4. Interacting with SEC staff is easier than you might think.
For a sense of scale, 732,000 documents were filed on Edgar in 2020. All that data is available to the public. Shortly after you submit your filing, it’s available to SEC staff for review.
- The SEC’s comment letter requests a response in 10 business days. If you ‘re not able to meet that deadline, reach out to staff and let them know when you will be able to respond. Your SEC contact is included in the letter, and you should be able to easily find the right person and get in touch with them.
- Don’t be afraid to pick up the phone and call staff. All written correspondence should go through EDGAR. If you have questions, though, pick up the phone and call staff. Sometimes a conversation with staff to better understand what gave rise to their comment can really help you to generate a more relevant response.
- Respond thoroughly and include supporting documentation. As part of a thorough response, include a detailed discussion about the accounting literature and how you applied it to your company’s facts and circumstances. Involve the right people. Engage other relevant reviewers: business unit personnel, securities counsel, auditors. If you’ve done your analysis and concluded your accounting is correct, lay it out for the SEC.
- Keep your EDGAR contact information current, so the SEC knows who to contact.
5. How to avoid delays in the comment letter process.
- Keep your story straight across all filed and public documents. Make sure the front of your document and the back of your document tell the same story as your financial footnotes. Cross-reference your SEC filings with other documents because the SEC will look at what you’re saying on the company website, earnings press releases and conference call discussions, and investor presentations.
- Before you make a non-GAAP disclosure, especially related to revenue, re-read the regulation. The #1 SEC comment topic for the last several years is non-GAAP measures. The SEC bases its comments on longstanding rules in Regulation G, Item 10(e) of Regulation S-K, and related non-GAAP compliance and disclosure interpretations. You can expect the SEC to object if something in a non-GAAP disclosure could be misleading in the context it is presented.
- Don’t let your disclosures get stale. Company footnote disclosures get stagnant. They are intended to be relevant in the present. Some companies routinely take a fresh look at footnote disclosures and update them as needed.
Want more? The on-demand recording of the meeting is available for 30 days on the Amplify website. Reach out to our friends at email@example.com if you have difficulty registering or accessing the recording.