SEC Comment Letter Considerations, Including Industry Insights

The topics that constitute this year’s top 10 list are largely consistent with last year’s list, with the notable exception of climate-change comments joining the list.1 The topics of MD&A and non-GAAP measure disclosures remain the two most significant sources of SEC staff comments since the staff remains laser-focused on them. Given the recent amendments to the rules governing MD&A, we expect comments on this topic to remain high. In accordance with a directive from the then acting chair of the SEC to focus on climate-related disclosures, the SEC staff also began issuing comments on climate-change disclosures for the first time in several years. We also observed an increased number of comments related to acquisitions, mergers, and business combinations following a rise in merger and acquisition activity over the past several years. Although not identified among the top 10 topics, COVID-19 and the Russia-Ukraine war have been the source of various SEC staff comments issued over the past year, many of which have focused on disclosures related to (1) risk factors, (2) MD&A, (3) early-warning disclosures related to impairments, and (4) adjustments to non-GAAP measures.

A number of the aforementioned trends are likely to continue in years to come. While it is difficult to predict what new comment letter trends are on the horizon, we look to the Commission’s priorities to help us predict topics of focus in the coming year. Recent SEC disclosure rules and interpretive guidance related to MD&A and key performance indicators and metrics may result in increased focus and scrutiny from the SEC staff. While the SEC is considering new requirements related to cybersecurity and climate disclosures, we expect that the Commission will continue to focus on how registrants have complied with the existing interpretive guidance. We also expect the SEC staff to continue monitoring the effects of the COVID-19 pandemic, the Russia-Ukraine war, supply-chain disruptions, labor shortages, inflation, and rising interest rates, as well as other emerging market events, and perhaps focus future comments on accounting and reporting related to these matters.

As the chart above illustrates, while there has been a notable decline in the number of reviews with comment letters over the past several years, that trend reversed in review year 2022. The reversal of this long-term trend may have resulted from (1) the SEC’s targeted review of climate-change disclosures, (2) recently amended SEC rules related to the description of the business, risk factors, and MD&A, and (3) the 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, and the SEC staff often issued comments on these topics to request expanded disclosures aimed at providing decision-useful information to investors. We expect these factors to affect the volume of comments next year as well. In addition, we expect the number of comments to grow next year because of a rise in the number of public companies over the past several years, which is largely attributable to increased transaction activity related to traditional initial public offerings (IPOs) and special-purpose acquisition companies (SPACs)2 in 2020 and 2021.

The SEC continues to prioritize reviews of larger companies, with large accelerated filers representing 61 percent of the reviews with comment letters in the current year even though they represented only 31 percent of the Forms 10-K filed. In addition, during the current year, approximately 50 percent of reviews with comment letters were for registrants generating $1 billion or more of revenue, although these larger registrants represented only 22 percent of the Forms 10-K filed.