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

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  • 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    redundant, outdated or superseded disclosures.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 ................................