Category Archives: Reporting

SEC Acting Chief Accountant Statement – FASB Agenda Consultation

On February 22, 2022, SEC Acting Chief Accountant Paul Munter issued a Statement titled “Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards.”

After a brief review of the FASB’s Agenda Consultation project Dr. Munter states:

“It is critically important that the FASB, and the Trustees of the Financial Accounting Foundation (the “FAF”) in its important oversight role over the FASB, continue to improve processes for obtaining and considering investor and other stakeholder feedback, and for clearly communicating with those stakeholders regarding how that feedback has impacted the standard-setting process. On behalf of Commission staff in OCA, in this statement, we highlight below why engagement with investors and other stakeholders is vital to the FASB’s ability to develop high quality accounting and financial reporting standards, and we provide observations on the FASB’s standard-setting process, its agenda consultation, and the related ITC feedback from investors and other stakeholders.”

The Statement then provides the Acting Chief Accountant’s observations on the Agenda Consultation project in areas including:

  • The Importance of Investors and Other Stakeholders to the Standard-Setting Process
  • Overall Feedback and Making the Case for Change
  • Disaggregation of Financial Reporting Information
  • Climate-Related Transactions and Disclosures
  • Digital Assets

As you read the Statement, you may want to focus on Dr. Munter’s discussion of the costs of preparing disaggregated information, the FASB’s goodwill project, and accounting and disclosures for digital assets.

The conclusion of the Statement includes this thought:

The financial reporting system’s collective objective of providing investors with high quality financial reporting demands that all stakeholders seek ways to improve and better address the needs of investors. In that regard, it is important that both the FAF and FASB focus on continued improvement in the fulfillment of their respective roles and responsibilities in the financial reporting system—especially in their efforts to more promptly address significant and evolving investor needs within the context of the financial statements.

As always, your thoughts and comments are welcome.

SEC Issues Staff Accounting Bulletin 120 Addressing “Spring-Loaded” Share-Based Payments

On November 24, 2021, the SEC Staff issued Staff Accounting Bulletin 120 to address recognition of compensation expense if a company enters into share-based payment transactions when in possession of material non-public information.  Such share-based payment transactions are frequently referred to as “spring-loaded.”  The SAB provides the staff’s views that companies must consider the impact of the release of material non-public information when estimating the fair value of such grants.

The SAB describes its objective with this language:

“Specifically, the staff is updating the Series to provide additional guidance to companies estimating the fair value of share-based payment transactions in accordance with Topic 718 regarding the determination of the current price of the underlying share and the estimation of the expected volatility of the price of the underlying share for the expected term when the company is in possession of material non-public information.”

The SAB includes a number of examples dealing with these issues.  It also updates various other SAB areas to conform with ASC 718.

As a reminder the Press Release closes with these words:

“The statements in SABs are not rules or interpretations of the Commission nor are they published bearing the Commission’s official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

As always, your thoughts and comments are welcome!

HeadSpin Enforcement – Avoiding Penalties

On August 25, 2021, the SEC announced charges against the former CEO of HeadSpin, Inc.  HeadSpin is a private tech company in Silicon Valley.  According to the Press Release and related SEC Complaint, the former CEO falsely manipulated sales records and key performance metrics.  The SEC alleges that the former CEO exerted control over HeadSpin’s financial reporting and was able to misstate results with actions such as creating false invoices and altering real invoices.

In this type of announcement the SEC almost always includes language that their investigation “is continuing.”  Usually further cases follow against the company and other parties.  The SEC did enforce against HeadSpin, but, surprisingly, the enforcement action did not assess penalties against the company.  As outlined in the SEC’s January 28, 2022,  Press Release and Complaint, it was an internal investigation started by the company’s Board of Directors that discovered the CEO’s actions.  Additionally, the company took significant remedial steps including removal of the CEO, hiring new senior management and repaying investors.  Based on these steps and others outlined in the Complaint,  the SEC settled fraud charges against the company without any penalty.

Both the Press Release and SEC Complaint offer valuable insights about steps companies can take when such a problem is discovered.

As always, your thoughts and comments are welcome!

A Climate Change Related SEC Comment

Climate change has been a major and well publicized part of the SEC’s agenda in the last year.  As you can read on the climate change section of the SEC’s webpage, CorpFin focused on climate change in the review process, the Enforcement Division formed a climate change task force, and the Commission issued an Invitation to Comment on climate change related matters.

CorpFin comment letters have addressed climate change.  On September 22, 2021, the staff issued this sample letter to companies providing examples of the types of comments it is issuing.

A recent comment letter to CarMax Auto Funding LLC regarding a registration statement disclosure provides an example of a climate change comment:

Risk Factors, page 38

  1. To the extent that you believe investors in these asset-backed securities may be impacted by climate related events, including, but not limited to, existing or pending legislation or regulation that relates to climate change, please consider revising your disclosure to describe these risks. See the Commission’s Guidance Regarding Disclosure Related to Climate Change, Interpretive Release No. 33-9106 (February 8, 2010).

The Interpretive Release mentioned in this comment, also known as FR 82, can be found here.

The company responded to this comment with modified risk factor disclosure.  You can find the modified risk factor and an example of a risk factor summary in the registration statement.

As always, your thoughts and comments are welcome.

New Requirement to Tag Auditor Information

On December 2, 2021, the SEC adopted a Final Rule implementing the requirements of the Holding Foreign Companies Accountable Act (HFCAA).  You can read more and find a link to the related Fact Sheet here. (Remember to include new Item 9C in your next 10-K!)

To implement the reporting required by the HFCAA the SEC must determine each reporting company’s auditor and the auditor’s location.  The Final Rule includes an addition to the “Document Entity and Information” section of the XBRL taxonomy for this information:

Consistent with these commenters’ suggestions, the final amendments include a new tagging requirement to facilitate the Commission’s accurate and efficient identification of Commission-Identified Issuers. To implement this requirement, in December 2021, the Document Entity and Information (“DEI”) taxonomy will be updated to include three additional data elements, applicable to annual report filings on Forms 10-K, 20-F, and 40-F that are submitted with XBRL presentations.  Those three data elements will identify the auditor (or auditors) who have provided opinions related to the financial statements presented in the registrant’s annual report, the location where the auditor’s report has been issued, and the PCAOB ID Number(s) of the audit firm(s) or branch(es) providing the opinion(s).

The update to the EDGAR filing manual was released on December 20, 2021.  All annual reports for periods ending on or after December 15, 2021, will require these new tags.

Details of the new tags are included in Volume II of the EDGAR Filer Manual.  Section 6.5.54 begins with this language:

Auditor Name, Location, and Firm ID

The name represents the plain text (not logo nor signature) name of the auditor; the location text represents the city along with either or both country, US state or Canadian province; the firm ID is the auditors’ Firm ID as assigned by the US PCAOB.

If the DEI namespace version used in the filing has those three standard elements, then the absence of any of the three facts will cause the filing to be suspended (see table in 6.5.21).

If the DEI namespace version used in a filing does not have the three standard elements, the use of that DEI namespace version will cause the filing to be suspended. The filer will need to resubmit the filing with a DEI namespace version that has the three standard elements.

All three facts must also be visible in the sense defined by, and should be tagged where they normally appear, adjacent to the auditors’ opinion.

An interesting aspect of this change is that generally only information prepared by the company is tagged.  How information about the company’s auditor will be tagged by management is likely something companies should discuss with their auditors.

As always, your thoughts and comments are welcome.

A Few Form 10-K Tips and Reminders

As year-end reporting ramps up, this post focuses on nine areas that are new or frequently mishandled in the annual reporting and proxy processes.  It will hopefully help:

            Deal with recent changes in Form 10-K and the proxy process, and

            Avoid frequent errors in 10-K form and content.

  1. What to do with old 10-K Item 6?

Anytime the SEC makes changes to the items or item numbers in Form 10-K there is confusion about handling these changes.  This is the case right now with old Item 6 – Selected Financial Data.

The first step to getting this change right is to review the most recent version of the Form 10-K Instructions at the SEC’s webpage.  There you will find Item 6 still included but with a different title:

            Item 6. [Reserved]

The second step is to remember that Exchange Act Rule 12b-13 requires that all item numbers in the instructions must be included in a report:

12b-13 Preparation of statement or report.

The statement or report shall contain the numbers and captions of all items of the appropriate form, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or instructions thereto. However, where any item requires information to be given in tabular form, it shall be given in substantially the tabular form specified in the item. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

Thus, the right approach is to include Item 6, but use the new title – [Reserved].


  1. Being Sure to Include New Item 9C.

Speaking of new Form 10-K Item numbers, earlier in 2021 the SEC added new Item 9C:

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

This disclosure is related to the Holding Foreign Companies Accountable Act.  You can read more in this blog post.  While this will not apply to many companies, as mentioned above, this new item should be included in your year-end 10-K.


  1. Double-Check Your Exhibit (4)(vi).

You might ask, “Is Exhibit (4)(vi) still an issue?”  Surprisingly, the answer is yes.  When the SEC’s Disclosure Modernization process added this exhibit to Form 10-K to include information about a company’s securities, an omission in the Final Rule language created confusion about the requirement.  You can read more in this post with all the details.  That confusion continues to today, so, to be clear, Form 10-K requires Exhibit (4)(vi), which should include the following from S-K Item 601:

(vi) For each class of securities that is registered under Section 12 of the Exchange Act, provide the information required by Item 202(a) through (d) and (f) of Regulation S-K
(§ 229.202 of this chapter).

Instruction 1 to paragraph (b)(4)(vi). A registrant is only required to provide the information called for by Item 601(b)(4)(vi) if it is filing an annual report under Exchange Act Section 13(a) or 15(d).

(Other instructions are omitted).

The required disclosures are found in S-K Item 202 – Description of registrants securities requirements.


  1. Place the S-K Item 201 Equity Compensation Plan Information in Item 12 or Your Proxy

Another common, although minor, error in many Form 10-K’s is including the S-K Item 201 Equity Compensation Plan Information in Item 5 rather than Item 12.  The 10-K instructions are a bit confusing because both Item 5 and Item 12 refer to this disclosure.  However, the staff has been clear in both a letter to the ABA and a Compliance and Disclosure Interpretation, that the table should be in Item 12 if it is included in Form 10-K.  You can read more details in this blog post.


  1. Consider Placing the Performance Graph in Your Annual Report to Shareholders

Another possible change some companies could consider is moving the performance graph required by S-K Item 201 to their annual report to shareholders or ARS.  The ARS is not filed information but is only furnished.  An instruction to S-K Item 201(e) makes it clear that this information is not required in Form 10-K:

  1. The information required by paragraph (e) of this Item need not be provided in any filings other than an annual report to security holders required by Exchange Act Rule 14a-3 (17 CFR 240.14a-3) or Exchange Act Rule 14c-3 (17 CFR 240.14c-3) that precedes or accompanies a registrant’s proxy or information statement relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting). Such information will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

You can read more in this blog post.


  1. Metric and Non-GAAP Reminders

SEC reviews continue to find many companies failing to follow some of the basic non-GAAP measure requirements of Regulation G and S-K Item 10(e).  Year-end is a great time to review Reg G, S-K Item 10(e) and the related Compliance and Disclosure Interpretations if you include non-GAAP measures in MD&A or other documents.


  1. MD&A Quantification

One of the significant changes to MD&A requirements in S-K Item 303 made by the SEC’s November 2020 MD&A Final Rule was the addition of this language:

Where the financial statements reflect material changes from period-to-period in one or more line items, including where material changes within a line item offset one another, describe the underlying reasons for these material changes in quantitative and qualitative terms.

In the last several years the staff has written countless comments requesting companies to discuss changes in both quantitative and qualitative terms.  Here is one example:

Please expand your results of operations discussion to quantify the impact of each factor identified as causing changes in results between periods. For example, we note that Mountain Reported EBITDA increased as a result of strong North American pass sales growth, strong growth in visitation and spending at western U.S. resorts, and recent acquisitions. Please quantify the impact of each factor attributing to the increase, here, and throughout your discussion, in accordance with Item 303(a)(3)(iii) of Regulation S-K and Section III.D of SEC Release No. 33-6835.

Vail Resorts, Inc., February 3, 2020

With this frequent comment topic now part of the regulatory guidance in S-K Item 303, it is likely a good idea to consider adding this kind of analysis to MD&A if it is not already included.


  1. Perks Disclosures

The SEC Enforcement Division continues to keep a watchful eye on how companies are disclosing perks.  As you can read in this post, enforcement cases focus on issues ranging from companies not using the right definition of perks to not disclosing all perks paid to officers.  It would be wise, in advance of developing information for the proxy, to review how your company computes and discloses perks.


  1. Shareholder Proposal Processes

As the Division of Corporation Finance announced on December 13, 2021, it has changed its policy and will now respond in writing to no-action requests regarding shareholder proposals.  This change should be incorporated into the planning schedule for proxy statements and annual meetings.

As always, your thoughts and comments are welcome!  If you have any tips you would like to add, feel free to put them in a comment.

SEC Finalizes Holding Foreign Companies Accountable Act Reporting

On December 2, 2021, the SEC adopted rules finalizing implementation of the Holding Foreign Companies Accountable Act (HFCAA).  The HFCAA requires a company to make certain submissions and disclosures if the auditor’s report on the financial statements in its annual report is issued by an auditor located in a foreign jurisdiction where the PCAOB is unable to inspect the auditor’s work.

The Final Rule specifies the SEC’s process to identify affected companies, which are referred to as “Commission-Identified Issuers.”  This process is based on an identification of auditors whose work is not subject to inspection in a related PCAOB Rule.  Identified companies are required to “provide information documenting that they are not owned or controlled by a governmental entity in its public accounting firm’s foreign jurisdiction on or before the due date of their annual report.”

According to the related Fact Sheet, “Commission-Identified Issuers,” that also meet the definition of “foreign issuer” in Rule 3b-4, will be required to make disclosures for itself and other related entities, that include:

  •  During the period covered by the form, the registered public accounting firm has prepared an audit report for the issuer;
  •  The percentage of the shares of the issuer owned by governmental entities in the foreign jurisdiction in which the issuer is incorporated or otherwise organized;
  •  Whether governmental entities in the applicable foreign jurisdiction with respect to that registered public accounting firm have a controlling financial interest with respect to the issuer;
  •  The name of each official of the Chinese Communist Party who is a member of the board of directors of the issuer or the operating entity with respect to the issuer; and
  • Whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the Chinese Communist Party, including the text of any such charter.

The definition of “foreign issuer” is in Exchange Act Rule 3b-4:

3b-4 Definition of “foreign government,” “foreign issuer” and “foreign private issuer”.

The term foreign issuer means any issuer which is a foreign government, a national of any foreign country or a corporation or other organization incorporated or organized under the laws of any foreign country.

You can read more in this Fact Sheet and the Final Rule.

As always, your thoughts and comments are welcome!

A Busy Holiday Season at the SEC

The SEC was busy in the weeks before the holiday season, taking several significant actions.  Here is a summary you can use to explore each development.

Latest Reg Flex Agenda

The SEC published its latest regulatory agenda, which you can review here.  Key issues to be addressed in the near-term include climate change and human capital resources disclosures.  Cybersecurity risk governance is also on the agenda.

Proposed New Rules for 10b5-1 Plans

On December 15, 2021, the SEC proposed amendments to Rule 10b5-1 to “strengthen the affirmative defense to insider trading” provided by the rule.  Details are in this related Fact Sheet and the Proposed Rule.  One significant change would be a 120-day cooling-off period before trading could begin under a plan.

Proposed New Rules and Disclosures for Stock Buybacks

On December 15, 2021, the SEC proposed amendments to its rules requiring disclosure about repurchases of equity securities.  You can read more in this Fact Sheet and the Proposed Rule.  Companies would be required to provide a new Form SR before the end of the first business day following a buyback.  In addition, periodic disclosures would include disclosure of the objective of share repurchases and any related process.

CorpFin Announcement Personally Identifiable Information in Rule 14a-8 Submissions

On December 17, 2021, CorpFin issued this Announcement requiring companies to redact all personally identifiable and any other related sensitive information from Rule 14a-8 submissions related to shareholder proposals.  The announcement also addresses how shareholder proponents should limit the amount of personally identifiable and sensitive information they include in correspondence to only information required to establish their eligibility to submit a proposal.

As always, your thoughts and comments are welcome!

Cybersecurity Insights from Commissioner Roisman

On October 29, 2021, SEC Commissioner Elad L. Roisman delivered a speech to the Los Angeles County Bar titled “Cybersecurity: Meeting the Emerging Challenge.”  In this speech he addresses important cybersecurity matters, beginning with this introductory section – “Understanding that You May be a Victim.”

“Before I go further, it’s important to acknowledge a point that is sometimes overlooked in discussions about cybersecurity.  In the case of cyber-crimes, companies are the targets and victims.  The last thing a company wants is to suffer this kind of criminal and illegal attack.  But, today, the threat of a cyber-attack is so constant and significant for every market participant that it should be viewed as a substantial likelihood.

The SEC has imposed specific obligations on particular registrants relating to certain cybersecurity risks.  But it’s undeniable that our registrants, who have more general obligations under the securities laws—such as to serve the best interests of clients or to shareholders—also are accountable for taking measures to prevent and mitigate damage from these threats as part of their broader responsibilities.

Accordingly, it has become increasingly important for market participants to work with counsel and other experts on preparing for potential cyber-attacks before they happen—that is, devising a plan for monitoring for cyber threats, responding to potential breaches, and understanding when information must be reported outside the company and to whom.”

After this assertion that cyber-attack should be viewed as a risk with a “substantial likelihood” and that companies should take measures to address this risk, he discusses cybersecurity risk for a variety of entities that the SEC regulates, including exchanges, SRO’s, advisors, broker dealers and others.

In the section addressing public issuers, he reviews the SEC’s 2018 Release “Commission Statement and Guidance on Public Company Cybersecurity Disclosures.”  In a related footnote he mentions that the Division of Corporation Finance “blazed trail” for this release with Disclosure Guidance Topic 2.  He reminds issuers that disclosure requirements in areas including risk factors, description of the business and MD&A may create obligations to disclose cybersecurity-related matters.  He also mentions that the 2018 Release focuses on  the importance of disclosure controls and procedures.  (See this post for an enforcement case about cybersecurity-related disclosure controls and procedures.)

Commissioner Roisman also discusses internal accounting controls over cybersecurity risk, mentioning the SEC’s 2018 “21(a) Report” that focused on cases where companies had been victimized in cybersecurity-related fraud.  That report, which did not enforce against the victim companies, reminded companies that internal accounting controls should address these kinds of risks.

Commissioner Roisman notes that the SEC’s rulemaking agenda includes issuer cybersecurity matters, but that no formal rulemaking has taken place yet.  He provides these thoughts about possible rulemaking:

“But I will let you know some of the things that I would be looking for as I consider any additional rules in this area.  First, we need to define any new legal obligations clearly.  Second, we need to make sure that these obligations do not create inconsistencies with requirements established by our sister government agencies.  Third, we should recognize that some registrants have greater resources than others, and we should not try to set the resource requirements for an entity.  And finally, because issuers’ businesses vary, the cybersecurity-related risks they face also will vary, and therefore a principles-based rule would likely work best.”

Commissioner Roisman’s thoughts provide helpful insights that can lead to action steps as we address cybersecurity risk going forward.

As always, your thoughts and comments are welcome!