SEC Comment Letters Focus on Non-GAAP Financial Measures, New Accounting Standards and Cybersecurity

October 23, 2017

Two reports published last month by Ernst & Young analyze trends in SEC comment letters for the year ended June 30, 2017. According to Ernst & Young’s 13-page “SEC Reporting Update,” use of non-GAAP financial measures now ranks as the most frequent comment area, and emerging areas of SEC focus include disclosures about the new revenue recognition standard and cybersecurity.

Ernst & Young reports that the SEC issued the most comments on compliance with its May 2016 updates to its Compliance and Disclosure Interpretations, or C&DIs, on the use of non-GAAP financial measures and predicts the SEC will “continue its vigilance in monitoring compliance with its updated C&DIs.” On October 17, the SEC signaled such continued vigilance by issuing further updates to its C&DIs on non-GAAP financial measures, focusing on the use of such measures in connection with business combinations (see Questions 101.01 and 101.02).

Ernst & Young’s second publication, a 134-page report titled “2017 SEC Comments and Trends: an analysis of current reporting issues,” discusses the SEC’s focus areas in more detail and includes supplements with information about SEC comments that are unique to certain industries, IPOs and foreign private issuers, as well as an appendix with an overview of the SEC review process and recommended best practices for responding to SEC comments. One useful tip: an SEC comment does not necessarily mean that the SEC disagrees with a company’s disclosures or accounting treatment. Often, providing a thorough explanation to the SEC will resolve the comment without the need for additional disclosure.

View All Ticker Posts