SEC Division Of Corporation Finance Statement On Disclosure Review
On June 24, 2024, Erik Gerding the Director of the SEC’s Division of Corporation Finance made a statement regarding the SEC’s state of disclosure review. In fiscal year 2023 and continuing into 2024, the top areas of review and comment by the SEC were China-related matters, artificial intelligence, non-GAAP disclosures, management’s discussion and analysis, revenue recognition and financial statement presentation. In addition, disruptions in the banking industry, cybersecurity risks, the impact of inflation and disclosure related to or as a result of newly adopted rules (such as pay versus performance) are gaining attention by SEC review teams.
The director’s statement gives some insight into the SEC’s focus and serves as a reminder to our clients and us practitioners alike to be sure we are staying abreast of the ever-changing capital markets environment.
China Related Disclosures
A few years ago, the SEC enacted the Holding Foreign Companies Accountable Act and approved rules implementing same (see HERE). The SEC continues to
SEC Publishes New Sample Comment Letter To China Based Companies
Continuing its concerns over the quality of disclosures from companies based in or with a majority of their operations in the People’s Republic of China, in July 2023, the SEC’s Division of Corporation Finance published yet another sample comment letter to China-based companies.
Back in April 2020, former SEC Chairman Jay Clayton and a group of senior SEC and PCAOB officials issued a joint statement warning about the risks of investing in emerging markets, especially China, including companies from those markets that are accessing the U.S. capital markets (see HERE). Before that, in December 2018, Chair Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chairman William D. Duhnke III issued a similar cautionary statement, also focusing on China (see HERE).
The Holding Foreign Companies Accountable Act (“HFCA”) was adopted on December 18, 2020, requiring both the SEC and the PCAOB to adopt rules and procedures implementing its provisions. The HFCA requires foreign-owned issuers to certify that the PCAOB
Financial Reporting Manual Updated
On January 30, 2023, the SEC’s Division of Corporation Finance updated its Financial Reporting Manual (“Manual”). The latest update is dated as of December 31, 2022. Although we attorneys like to leave the accounting to the accountants, the Financial Reporting Manual is a go to resource for all practitioners and is generally one of the many resources always open on my desktop.
As the preamble to the Manual states, it was originally created as internal guidance to the SEC staff. In 2008, in an effort to increase transparency of informal staff interpretations, the SEC posted a version of the Manual to its website. The SEC continues with its usual disclaimers that the manual is not formal guidance and that they can change their interpretations or views at any time, etc. Regardless, we all use it as a resource and in my years of experience, have never had the SEC take a counter-position to the Manual’s guidance unless there has been
