In a brief order, on March 22, 2024, the Fifth Circuit of the U.S. Court of Appeals removed its stay of the SEC’s climate-related final rule. The cases challenging the final rule have been consolidated in the Eighth Circuit. Stay tuned for future developments!
As always, your thoughts and comments are welcome.
On March 15, 2024, in this very brief order, the Fifth Circuit of the U.S. Court of Appeals issued an administrative stay of the SEC’s climate-related disclosure final rules. Time to stay tuned for developments!
As always, your thoughts and comments are welcome!
In a long-anticipated development, on March 6, 2024, the SEC adopted final rules requiring climate-related disclosures. The rules add:
To help companies and advisors implement these new requirements, PLI’s SEC Institute will offer several programs.
We will present two One-Hour Briefings delving into the final rules at 1 p.m. and 3 p.m. on April 18, 2024. The first briefing will focus on governance related disclosures and the second briefing will focus on GHG emission and financial statement disclosures. We will put links to the briefings in this blog as soon as they are available.
Our Midyear Forums will include in-depth discussion of the details of the rules.
We will also have a special conference in the early fall focused on understanding and implementing these extensive new disclosures. We will put a link to this conference in this blog as soon as it is available.
You can read more in the related Fact Sheet and the Final Rule Release.
As always, your thoughts and comments are welcome.
On February 28, 2024, the SEC announced it will consider a final rule for climate-related disclosures on March 6, 2024. You can find the announcement and the agenda here. You can find information about the webcast of the meeting here.
As always, your thoughts and comments are welcome!
On February 5, 2024, SEC Chief Accountant Dr. Paul Munter issued a Statement titled “An Investor Protection Call for a Commitment to Professional Skepticism and Audit Quality.” The Statement reminds auditors and audit committees that their ultimate responsibility is to investors.
In the introduction to the Statement Dr. Munter notes that the PCAOB inspection process has found an increase in audit deficiencies over the last several years:
“The Public Company Accounting Oversight Board (“PCAOB”) reported a troubling increase in deficiency rates found in its recent inspections. In its 2022 inspections of audits performed in 2021, the PCAOB inspections program found that insufficient audit evidence was obtained to support the auditor’s opinion in 40% of inspected audits. In its 2021 inspections, this same deficiency rate was 34%, up from 29% in its 2020 inspections. This is a troubling trendline in PCAOB inspections results.”
He then goes on to state:
“While we believe strongly that most auditors are talented professionals, dedicated to performing high-quality audits, the issues and trends identified in PCAOB inspections in recent years demand the attention and renewed commitment of the entire profession to deliver on its mission of protecting investors.”
The Statement then focuses on two principal areas:
Management’s Role and Auditors’ Exercise of Professional Skepticism in Response to Changing Conditions
After a discussion focused on several audit issues, including frequent inspection findings and the importance of professional skepticism, the Statement emphasizes that audits are not like other business services:
“Applying professional skepticism can sometimes come at a cost, whether it is budget overruns, conflicts with management, or pressure from within the audit firm to maintain client relationships. But the audit engagement is not a standard business relationship between service provider and client, with profit as the primary goal and indicator of success. Instead, as the Supreme Court recognized, the auditor’s ultimate responsibility is to the investing public.”
The Importance of the Audit Committee in Prioritizing and Promoting Audit Quality
In this section of the Statement Dr. Munter focuses on important aspects of audit committee oversight of the audit process:
“Academic studies highlight the risk that, in some cases, in executing their mandate, audit committees may look to protect the interests of the issuer and its management over the interests of investors. This risk can arise out of an audit committee’s association or coziness with the issuer or its management or through management’s influence over the audit committee’s supervision of the auditor. We remind audit committees of their role as critical gatekeepers for investor protection through oversight of a high-quality audit and the benefit of having an audit committee that is independent of management.”
As always, your thoughts and comments are welcome.
On December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s May 3, 2023, share repurchase disclosure rules (Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.). As a result of this decision, CorpFin issued this Announcement on February 9, 2024, clarifying that companies should follow the pre-amendment disclosure requirements in S-K Item 703 to provide monthly information about share repurchase transactions. The following example from Proctor and Gamble’s June 30, 2023 Form 10-K follows the prior rules:
Note that this disclosure is included in Item 5 of Form 10-K.
As always, your thoughts and comments are welcome.
On January 24, 2024, the SEC adopted final rules that create substantial reporting and process changes for SPACs. The rules were originally proposed on March 30, 2022. The new rules affect both SPAC IPO and de-SPAC transactions. (A de-SPAC transaction occurs when a SPAC merges with an operating company.) In his Statement on the final rules, Chair Gary Gensler said that the new rules would “better align the protections investors receive when investing in SPACs with those provided to them when investing in traditional IPOs.”
You can find an overview of the voluminous new rules, which create a new Subpart 1600 in Regulation S-K, in this Press Release and the related Fact Sheet. Highlights of the changes for SPAC IPOs include additional disclosures about SPAC sponsors, SPAC sponsor compensation, conflicts of interest and dilution. For de-SPAC transactions, new disclosures include additional details about the target company and information about whether the board of the SPAC determined the transaction was advisable for the company and shareholders. The new rules provide that the 1995 Private Securities Litigation Reform Act safe harbors for forward-looking statements will not be available for SPACs and also change underwriter liability in de-SPAC transactions.
The rules will be effective 125 days after publication in the Federal Register. Certain information will be tagged with Inline XBRL, but this requirement is not effective until 490 days after publication in the Federal Register.
On January 25, 2024, the day after adopting the new rules, the SEC announced settled charges against Northern Star Investment Corp II, a SPAC, for failing to disclose discussions with a potential acquisition target in its IPO registration statement and de-SPAC transaction Form S-4. As you can read in the SEC’s Order, the company entered into a cease and desist order and paid a fine of $1.5 million.
You can learn more about the new rules and SPACs in general at two upcoming programs:
A One-Hour Briefing about the final rules on February 14, 2024 – SPAC Developments: SEC Amendments to SPAC IPO and de-SPAC Related Rules, and
Our SPAC Life Cycle: Business, Legal, and Accounting Considerations Forum on April 15, 2024, will discuss the new rules in depth.
As always, your thoughts and comments are welcome.
On January 17, 2024, the SEC scheduled an Open Meeting on January 24, 2024, to consider finalizing its March 30, 2022, Proposed Rules for SPAC transactions. You can find the meeting agenda here.
PLI will present a One-Hour Briefing about the coming Final Rules on February 14, 2024. We will share a link to the briefing in a blog post when it is available.
In addition, our SPAC Life Cycle: Business, Legal, and Accounting Considerations Forum on April 15, 2024, will discuss the new rules in depth.
As always, your thoughts and comments are welcome.
In 2019 and 2020, CorpFin modernized the process companies use to request confidential treatment. Prior to the modernization, companies essentially had to request and obtain permission from the staff to redact information from a filing. The modernized procedure allows companies to redact information in material contracts without specific staff approval if the information is immaterial and customarily and actually treated as private or confidential. This process is subject to staff review. While the new process is simpler for companies, the old process is still occasionally used today.
On January 8, 2024, CorpFin updated sections of Disclosure Guidance Topic No. 7 related to confidential treatment applications pursuant to the old guidance, which is in Rules 406 and 24b-2. In an explanatory note CorpFin explains:
This guidance has been generally updated, including with respect to options for confidential treatment orders that are about to expire. Different extension procedures apply depending on whether the order is greater or less than three years old. The prior version of this guidance referred to a fixed date rather than a rolling three-year period.
You can find the updated Disclosure Guidance Topic here.
As always, your thoughts and comments are welcome!
On November 7, 2023, the Division of Corporation Finance announced a new online system for submitting shareholder proposals under the Division’s process to provide informal, non-binding staff views regarding companies’ intentions to exclude proposals from proxy statements. Companies must use this new online form. Emailed submissions will not be accepted. You can read more and find a link to the online form here.
This announcement does not change the Division’s process for providing informal, non-binding views, which is described on this webpage.
As always, your thoughts and comments are welcome!