EY's "2017 trends in SEC comment letters" identifies and discusses - inclusive of illustrative SEC Staff comments and associated firm insights - the leading Form 10-K SEC comment letter trends for the 2017 year ended June 30th, as well as the emerging focus areas of revenue recognition and cybersecurity disclosure.
As shown below and via the chart's accompanying footnotes, the most common comment area - climbing from 2nd place last year - was non-GAAP financial measures. MD&A or, more specifically, these areas within MD&A* (in order of frequency, with many companies receiving comments in more than one category): (1) results of operations (27%), (2) critical accounting policies & estimates (12%), (3) liquidity matters (10%), (4) business overview (8%), and (5) contractual obligations (3%) - fell from 1st place last year to 2nd place this year. Fair Value Measurements and Segment Reporting came in 3rd and 4th, respectively.
- Ranking 12 months ended 30 June
- Comments as % of total registrants that received comment letters
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A
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A
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B
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Comment Area
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2017
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2016
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2016 and 2017
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Non-GAAP financial measures
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1
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2
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40%
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Management's discussion and analysis
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2
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1
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43%
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Fair value measurements
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3
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3
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20%
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Segment reporting
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4
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5
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16%
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Revenue recognition
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5
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4
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15%
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Intangible assets and goodwill
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6
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7
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14%
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Income taxes
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7
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6
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14%
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State sponsors of terrorism
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8
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**
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10%
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Acquisitions and business combinations
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9
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8
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9%
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Executive compensation
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10
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**
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8%
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* Based on comment letter topics assigned by research firm Audit Analytics for SEC comment letters issued to registrants related for Forms 10-K from 1 July 2015 through 30 June 2017.
EY's robust companion report: "SEC Comments and Trends — An analysis of current reporting issues" discusses the SEC staff’s focus areas in more detail - replete with sample comments and links to additional relevant resources; highlights emerging trends related to specific industries, IPO companies, and foreign private issuers; and provides an overview of the staff’s filing review process and suggested best practices for responding to comments. The materiality discussion and guidance in the firm's letter preceding the report's table of contents is particularly noteworthy for those involved in the disclosure and financial reporting process.
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See also this post from Stinson Leonard Street Partner and Society member Steve Quinlivan noting recent SEC comments on Form 10-Q revenue recognition transition disclosures that may assist other companies in avoiding similar comments on their next Q filing, and numerous additional resources on our Financial Reporting topical page.
This post first appeared in last week's Society Alert.
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