Top 5 Issues Noted in SEC Comment Letters
Top 5 Issues Noted in SEC Comment Letters

Top 5 Issues Noted in SEC Comment Letters

The new year has begun and it’s that time of year again to reflect on the past year, set goals for the coming year and, for many of us accountants, to dive into year-end accounting and reporting! To help get us in the annual reporting spirit, let’s review some of the top SEC comment letter areas from the 2017 SEC review year.

The AICPA held their Conference on Current SEC and PCAOB Developments on December 4-6, 2017. The annual conference draws a large volume of attendees as accounting and auditing professionals come to gain valuable insights from the presenters, which include representatives from the FASB, IASB, SEC, PCAOB, accounting firms, financial preparers and other industry subject matter experts. One of the sessions at the conference was a comment letter panel where these top SEC comment letter areas were discussed.

#1 Non-GAAP Measures

Non-GAAP measures have been a hot topic with the SEC in recent years. If you recall, the SEC’s concerns are whether these non-GAAP measures that entities include in their financial reporting are confusing or misleading investors. Last year, the SEC updated their Compliance & Disclosure Interpretations ("C&DIs") of Non-GAAP Financial Measures which provides SEC guidance on rules and regulations on the use of non-GAAP financial measures.

At the conference, it was noted that the SEC has seen improvements by companies as the volume of comments on non-GAAP measures have declined but this area has continued to be an area of focus and registrants need to be mindful of the guidance when providing non-GAAP measures in their financial reporting.

As a reminder, registrants should continue to consider whether undue prominence is being given to non-GAAP measures, whether reported non-GAAP measures are misleading to users, whether non-GAAP measures are clearly labelled as such, and whether sufficient disclosures related to the purpose of non-GAAP measure have been provided, among other things.

#2 MD&A

MD&A is another area that continues to be one that the SEC staff scrutinizes. The SEC believes that a company’s MD&A should tell a complete, consistent story of how management thinks about its business strategy, long-term trends, and current year results in the context of those trends.

Specific SEC focus areas to consider as registrants prepare their MD&A include adequacy and transparency related to:

  • Material trends and uncertainties that affect results of operations,
  • Estimates in critical accounting policies,
  • Liquidity and capital resources,
  • Disclosure of contractual obligations,
  • Early warning disclosures; and
  • Disclosures related to income taxes

#3 Fair Value

Fair value is ranked as the third most common SEC comment letter area. As defined in ASC topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Given that most fair value measurements involve a high degree of estimation rather than precise measurements, the SEC comments continue to focus on the valuation techniques and inputs used in fair value measurements, fair value measurement disclosures and the use of third-party pricing services.

#4 Segment Reporting

Segment reporting has topped the list of comment areas for over 10 years now. Segment reporting garners such attention from the SEC because this information provides insight into how management manages and monitors the business and is thus a critical element for users of financial statements to gain an understanding of the company and its management.

Some of the recent areas of comment noted were related to the identification and aggregation of operating segment and segment reporting disclosures.

For a more detailed discussion of segment reporting application issues, review our past blog post: Segment Reporting (ASC 280): Where Companies Are Getting It Wrong!

#5 Revenue Recognition

With the arrival of 2018, ASC 606 Revenue Recognition is now effective for public companies. Even with the new guidance on the horizon, revenue recognition under the old ASC 605 standard still made the top 5 list of comment areas in 2017.

In the 2017 SEC review year, the SEC continued to comment on principal versus agent accounting, multiple element arrangements and revenue recognition disclosures.

For further information and considerations regarding the old revenue recognition standard, check out our posts on a refresher of ASC 605 and additional insights on company challenges related to the old revenue recognition guidance.

If you are starting or have started with the new revenue recognition standard, we have a series of helpful blog posts. I recommend starting with Step 1 of the new five step revenue recognition model.

While these top 5 areas are no surprise, as they have generally been recurring areas of comment in past years, they continue to garner attention from the SEC. Hopefully this serves as a good reminder of topics that we should keep in mind as we close the books for 2017 and prepare for 2018.

Deloitte issued a publication in November 2017, SEC Comment Letters – Including Industry Insights that provides insight on the top 10 comment letter topics and is a great resource for accountants as we focus on the annual calendar year-end reporting fun!


This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

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