EY SEC Comments and trends - An analysis of current reporting issues - September 2016

SEC Comments and Trends An analysis of current reporting issues

September 2016

SEC Comments and Trends

Every year, we closely monitor the Securities and Exchange Commission (SEC) staffs comments on

public company filings to provide you with insights on its areas of focus. Understanding the SEC staffs

comments and trends can help you as you head into the year-end reporting season. However, each

registrants facts and circumstances are different and require judgments about the appropriate accounting

treatment and evaluations about materiality. Therefore, while this publication highlights areas where the

SEC staff may comment, registrants should carefully consider their disclosures based on whether the

information is material to investors.

The SEC continues to encourage registrants to streamline disclosures and make them more meaningful.

SEC Chair Mary Jo White has said the SECs disclosure effectiveness project is a priority. Over the past

year, the SEC has advanced its disclosure effectiveness initiatives by issuing a request for comment on

certain items in Regulation S-X, a concept release on Regulation S-K, and a proposal on eliminating

redundant, outdated or superseded disclosures. In light of this initiative, and these releases, registrants

should consider the following points when evaluating the trends in staff comments we highlight in this

publication and whether to adjust their disclosures:

The SEC staff often issues comments to obtain additional information when it believes that a

company may not have complied with requirements, omitted information that may be material or

provided disclosures that appear misleading to investors. That does not mean the staff has not

reached a conclusion that the requested information is material. Registrants should consider the

materiality of additional disclosures before including them solely to clear an SEC staff comment.

Registrants should regularly evaluate whether their disclosures continue to be material to investors

as their facts and circumstances change. That is, they may eliminate immaterial disclosures even if

they were included in prior filings in response to an SEC staff comment.

Registrants should improve their disclosures by eliminating repetition and focusing on more

meaningful discussion. For example, managements discussion and analysis (MD&A) disclosure of

critical accounting estimates often repeats disclosure from the significant accounting policies

footnote without providing additional insight into the judgments and uncertainties underlying

managements estimates.

You can use this publication to identify topics where the SEC staff may challenge the accounting

treatment or request enhanced disclosure. In all cases, we encourage companies to include a disclosure

only when it is material to users.

The SEC staff continues to focus on many of the same topics that we highlighted last year. The following

chart summarizes the top 10 most frequent comment areas in the current and previous years.

To our clients and other friends

To our clients and other friends

Ranking

12 months ended 30 June

Comments as % of total

registrants that

received comment

letters*

Comment area 2016 2015 2015 and 2016

Managements discussion and analysis** 1 1 44%

Non-GAAP financial measures 2 4 18%

Fair value measurements*** 3 2 21%

Revenue recognition 4 3 16%

Segment reporting 5 7 13%

Income taxes 6 6 14%

Intangible assets and goodwill 7 8 12%

Acquisitions and business combinations 8 9 10%

Signatures, exhibits and agreements 9 5 13%

Commitments and contingencies 10 13 8%

* Based on comment letter topics assigned by research firm Audit Analytics for SEC comment letters issued to registrants related to

Forms 10-K from 1 July 2014 through 30 June 2016.

** This category includes comments on MD&A topics, in order of frequency: (1) results of operations (26%), (2) liquidity matters (12%), (3) business overview (10%), (4) critical accounting policies and estimates (9%) and (5) contractual obligations (3%). Many companies received MD&A comments in more than one category.

*** This category includes SEC staff comments on fair value measurements under Accounting Standards Codification (ASC) 820 as well as

fair value estimates, such as those related to revenue recognition, stock compensation and goodwill impairment analyses. Individual SEC staff comments may be associated with more than one comment area in this chart.

While over the past 12 months we have seen the SEC staffs focus shift to reining in the use of non-GAAP

financial measures, the staff continues to question registrants disclosures related to significant

judgments and estimates, including those related to segment reporting, goodwill impairment, income

taxes and revenue recognition. Registrants are spending significant time addressing SEC staff comments

on these topics. The SEC staff requests additional information to support registrants conclusions and

additional disclosures about the facts and circumstances that support significant judgments.

The main section of this publication discusses recent matters that concern all registrants. Appendices A,

B and C highlight emerging trends related to specific industries, companies filing initial public offering

(IPO) registration statements and foreign private issuers, respectively. Appendix D provides an overview

of the SEC staffs filing review process and best practices for responding to staff comments.

We hope you find this publication helpful. EY professionals are prepared to discuss any concerns or

questions you may have.

SEC Comments and Trends i

Managements discussion and analysis.................................................... 1

Critical accounting estimates .......................................................................... 1

Liquidity and capital resources ....................................................................... 4

Results of operations ..................................................................................... 8

SEC reporting issues ............................................................................ 12

Non-GAAP measures .................................................................................... 12

Executive compensation disclosures ............................................................. 16

Exhibits and signatures ................................................................................ 19

Internal control over financial reporting and disclosure controls

and procedures .................................................................................. 22

Materiality ................................................................................................... 25

Other entity financial statements ................................................................... 27

Pro forma adjustments ................................................................................. 29

Rule 4-08(e) disclosures ............................................................................... 32

Other SEC reporting issues ........................................................................... 33

Financial statement presentation.......................................................... 35

Accounts receivable ............................................................................. 38

Business combinations ......................................................................... 39

Consolidation ....................................................................................... 42

Contingencies ...................................................................................... 44

Earnings per share ............................................................................... 46

Fair value measurements ..................................................................... 47

Foreign currency matters ..................................................................... 52

Goodwill ............................................................................................... 53

Income taxes ........................................................................................ 57

Intangible assets .................................................................................. 63

Revenue recognition ............................................................................ 66

Pension and other postretirement benefit plans .................................... 72

Segment reporting ............................................................................... 75

Appendix A: Industry supplements ........................................................ 82

Banking supplement ..................................................................................... 82

Real estate supplement ................................................................................ 87

Retail and consumer products supplement .................................................... 91

Oil and gas supplement ................................................................................ 93

Other industries ......................................................................................... 101

Appendix B: IPO supplement ................................