1.3 Significant Upward Trend in Reviews With Comment Letters and Number of Comment Letters Issued

As the charts above illustrate, while there was a notable decline in the number of reviews with comment letters and the number of comment letters issued on Forms 10-K and 10-Q from the beginning of review year 2020 through the end of review year 2021, the trend started to reverse in review year 2022, with a substantial increase in review year 2023. While down slightly from the prior year in both reviews with comment letters (an 8 percent decrease from the prior year) and the overall number of comment letters (an 8 percent decrease from the prior year), the volume of reviews and comment letters in review year 2024 represents an increase of more than 50 percent over the average seen from the beginning of review year 2020 through the end of review year 2022. We expect comment letter activity to remain elevated for the following reasons:

• Increase in the number of public companies — Throughout calendar years 2020 and 2021, the volume of traditional IPOs and SPAC transactions reached record levels, with more than 800 companies going public during this time frame. Consequently, there was an increase in the number of Forms 10-K filed by public companies, which are subject to recurring SEC staff review. With more public companies subject to review, we expect a higher level of comment letter activity than in past years.
• Use of comments to elicit expanded disclosures related to emerging issues — Over the past several years, the global economy has been affected by a variety of emerging market events. This trend shows no signs of stopping, especially with the transformational impacts of AI affecting business worldwide. The SEC staff often issues comments on the impacts of emerging market events to request expanded disclosures aimed at providing decision-useful information and greater transparency to investors.

Although the number of reviews with comment letters remains elevated, the vast majority of reviews conducted by the SEC do not result in a comment letter. In the SEC’s fiscal year ended September 30, 2023, the SEC staff reviewed approximately 3,300 companies as part of the annual review process. However, only about 25 percent of the reviews of those companies resulted in a comment letter.