Webcast title in Verdana Regular

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1 Webcast title in Verdana Regular SEC hot topics: Year-end update The Dbriefs Financial Reporting series Bob Uhl, Partner, Deloitte & Touche LLP Hero Alimchandani, Managing Director, Deloitte & Touche LLP Marla Lewis, Senior Manager, Deloitte & Touche LLP Doug Rand, Senior Manager, Deloitte & Touche LLP November 8, 2018

2 Agenda SEC organization and structure SEC priorities Cybersecurity Non-GAAP measures and KPIs New accounting standards Revenue Leasing Credit losses SEC review process Comment letter trends Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 2

3 Items to note Keep in mind: This webcast does not provide official Deloitte & Touche LLP interpretive accounting guidance. Check with a qualified advisor before taking any action. Learning objective: To enhance participants understanding of important accounting issues and developments pertaining to recent actions of the SEC and others. Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 3

4 Polling question #1 Are you a financial statement preparer, user, auditor, or other interested party? Preparer User Auditor Other Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 4

5 SEC priorities Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 5

6 SEC organization and structure Commissioner Robert Jackson, Jr. (Term expires 2019) Commissioner Hester Peirce (Term expires 2020) Chairman Jay Clayton (Term expires 2021) Commissioner Kara Stein (Term expired 2017)* Commissioner Elad Roisman (Term expires 2023) Economic and Risk Analysis Corporation Finance Director William Hinman Investment Management Trading and Markets Enforcement Office of Chief Accountant Chief Accountant Wesley Bricker Corp Fin Office of the Chief Accountant Chief Accountant Kyle Moffatt Industry Assistant Director (AD) Group (11) * Kara Stein s term ended June 2017, can serve up to 18 months after term end Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 6

7 SEC priorities Mission Protect investors Facilitate capital formation Maintain fair, orderly and efficient markets Areas of focus and recent activities IPOs and M&A activity Disclosure effectiveness Cybersecurity Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 7

8 Disclosure effectiveness Final rules issued Proposed rules issued On the agenda Smaller Reporting Company definition Inline XBRL Disclosure Update and Simplification Mining disclosures Guarantor financial information Acquired business financial information Bank holding company disclosures Business and financial disclosures (Reg. S-K) Accelerated filer definition Interim reporting Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 8

9 Polling question #2 What changes do you think the SEC should make to interim reporting requirements? All companies should report semi-annually rather than quarterly All companies should be permitted to utilize earnings releases in lieu of more detailed requirements on Form 10-Q Modifications of the frequency or content of interim reporting should be limited to Smaller Reporting Companies and/or Emerging Growth Companies Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 9

10 Cybersecurity Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 10

11 Cybersecurity Evolution of SEC focus 2011 Corp Fin (CF) Disclosure Guidance: Topic 2 Cybersecurity Feb Release of updated cyber risk disclosure guidance Increase in cyber threats and high profile breaches Oct SEC investigative report on cyber threats and internal control Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 11

12 Cybersecurity 2018 Cyber release Consistent with CF Disclosure Topic 2 Expanded New Risk factors MD&A Business Legal proceedings Financial statement disclosures General disclosure obligations Disclosure controls & procedures Board risk oversight Insider trading policies Regulation FD and selective disclosure Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 12

13 Cybersecurity Cyber disclosures what to ask Is cybersecurity treated like a business risk rather than just an IT risk? Are IT, business, legal and financial reporting personnel involved in the control process? Do our cybersecurity controls address both the identification and escalation of cyber incidents? Are there appropriate disclosure controls and procedures (DCPs) in place to ensure timely and tailored disclosure of cyber risks and incidents? Have we revisited our existing cyber security disclosures in light of the updated SEC guidance? Does our insider trading policy consider limitations when a cyber incident is identified? Have we evaluated and, if appropriate, disclosed the oversight role of the board of directors (BOD) in the cyber risk assessment process? Should we consider an independent assessment process? Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 13

14 Cybersecurity 2018 Cyber report Focuses on business compromises (BEC) - fake executive and vendor s Since 2014 BECs have caused over $5 billion in losses Summarizes findings from investigations of 9 registrants (no enforcement action taken) Encourages registrants to evaluate whether internal accounting controls are sufficient to safeguard assets: Adapt to changing threats Importance of training and user awareness See Division of Enforcement Investigative Report Cyber- Related Frauds Perpetrated Against Public Companies and Related Internal Accounting Controls Requirements Issued October 16, 2018 Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 14

15 Polling question #3 Has your company/company you audit or follow, disclosed risks related to cyber threats? Yes The company disclosed specific cyber incidents Yes The company disclosed general cyber risks, but not specific incidents No The company did not disclose cyber risks Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 15

16 Non-GAAP measures & KPIs Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 16

17 Non-GAAP measures and KPIs Where are we now? Overall level of comments has declined Focus on Disclosure Controls and Procedures Comments continue regarding: Individually tailored accounting Potentially misleading adjustments Transparent labeling Adjustments for impact of: Tax reform New guidance on recognizing and measuring financial instruments (ASU ) Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 17

18 Non-GAAP measures and KPIs Comment trends Most common Non-GAAP comments: 40.00% 35.00% 37.60% 30.00% 37% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 22.10% 13.70% 10.70% 12.30% 12.70% 7.60% 9% 6.50% 6% Jul Dec Jan Jun Undue prominence Net of tax presentation Individually tailored accounting principles Performance measure excludes recurring cash operating cost Source: Audit Analytics, Trends in SEC Non-GAAP Comment Letters , Nicole Hallas and Olga Usvyatsky, October 16, Percentages calculated by comparing the number of unique registrants receiving a comment on the selected topic to the total number of unique registrants receiving a non-gaap related comment. Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 18

19 Polling question #4 Has your company/company you audit received a comment letter on any of the following common non-gaap topics? Undue prominence Net of tax presentation Individually tailored accounting principles Performance measure excludes recurring cash operating cost Company has not received any of these comments Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 19

20 New accounting standards Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 20

21 New accounting standards revenue SEC comments Significant judgments ~35% Identification of performance obligations Determination of transaction price Allocation of transaction price Identification of measure of progress Example SEC comment disclose why for performance obligations that you satisfy over time the method used provides a faithful depiction of the transfer of goods or services... Performance obligations ~ 20% Point in time vs. over time Disclosure of significant payment terms Significant financing components Principal vs. agent Example SEC comment Tell us how you considered the guidance in [ASC 606] in determining the point in time at which you recognize revenue and disclose any significant judgements made in evaluating when control is transferred. Contract Costs ~ 15% Method being used to amortize the costs How the amortization period correlates with the period of benefit Consideration of renewals Example SEC comment please revise to disclose the method by which you amortize the initial commission costs over the five-year period of benefit Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 21

22 New accounting standards leasing SEC reporting considerations Transition issues New transition option vs. modified retrospective method Adoption date for certain PBEs Transition disclosures Transition method Qualitative and quantitative discussion of lease portfolio Practical expedients Other considerations Impact on performance measures Impact on debt covenants ICFR New disclosures Disaggregation Significant judgments Transition, adoption Lease identification New processes & systems Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 22

23 New accounting standards credit losses SEC reporting considerations 1 Scope Impacts broader than financial services entities Accounts receivable, lessor receivables in scope, contract assets 2 Transition Effective in 2020 Modified retrospective method effective beginning of the first reporting period of adoption 3 Disclosure Credit quality indicators disaggregated by year of origination for five years Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 23

24 SEC review process Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 24

25 SEC review process All issuers reviewed at least once every 3 years Focus on largest registrants that comprise a large portion of the market cap Percentage of issuers reviewed: FY 12 FY13 FY14 FY15 FY16 FY17 48% 52% 52% 51% 56% 56% Not all reviews result in comment letters Staff is listening to analyst/earnings calls, reviewing press releases, websites Comments are posted to EDGAR 20 days after completion of review Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 25

26 Comment letter trends Reminders about communications with the SEC SEC comment letter process SEC staff views the comment letter process as a dialogue between the registrant and the SEC: Just because the staff asks a question does not mean that it has reached a conclusion or that a change is required Registrant should not agree to include a disclosure in future filings solely to expedite the completion of a review Registrant should communicate, early on, if it believes that a comment concerns an immaterial matter Registrants should be cautious in analogizing to other registrants fact patterns Registrants should give the SEC time to appropriately evaluate substantive new information during the review process Prefiling letter process Division of Corporation Finance s OCA Request for interpretations, accommodations, or waivers of financial reporting and disclosure requirements SEC s Office of the Chief Accountant Requests for accounting, financial reporting, and auditing interpretations Staff reminders: Be concise Focus on relevant facts Provide solutions and adequate support for the proposals Show letter to auditors and have them weigh in before sending Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 26

27 Polling question #5 How long has it been since you last received an SEC comment letter? Less than 12 months months months More than 36 months Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 27

28 Comment letter trends Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 28

29 Comment letter trends Improving trends driven by: Access to Edgar More frequent reviews Anticipation of a review Less significant changes in accounting rules Effective communication of the SEC s expectations Decline in 10-Ks filed Average days to complete a review Reviews with comment letters 1,751 1,475 1,229 1, Average number of comment letters per review *The new revenue standard became effective for many registrants on January 1, 2018, and we began to observe SEC staff comments on that standard toward the end of the current year. Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 29

30 Comment letter trends Note: Comment Letter trend information was derived from data provided by Audit Analytics based on the percentage of all comment-letteryielding Form 10-K and 10-Q reviews that include a comment on topic. Size of word represents frequency of comment. Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 30

31 Comment letter trends Areas of focus MD&A Tell management s story Quantifying multiple impacts Estimates in critical accounting policies Disclosures related to income taxes Segments Identification of operation segments Changes in reportable segments Aggregation of operating segments still a focus consider both quantitative and qualitative factors Entity-wide disclosures Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 31

32 Polling question #6 Where do you think revenue recognition will rank on next year s list of most frequent comments? #1 Top 3 Top 10 Outside of Top 10 Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 32

33 Question and answer Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 33

34 Acronyms used in presentation ASC Accounting Standards Codification ASU Accounting Standards Update BOD Board of Directors CECL Current Expected Credit Loss DCP-Disclosure Controls & Procedures EDGAR Electronic, Data Gathering, Analysis and Retrieval FASB Financial Accounting Standards Board FD Fair Disclosure FRM Financial Reporting Model GAAP Generally Accepted Accounting Principles IPO Initial Public Offering ICFR Internal Control over Financial Reporting IT Information Technology KPI Key Performance Indicator M&A Mergers & Acquisitions MD&A Management Discussion & Analysis OCA Office of the Chief Accountant PBE Public Business Entity PCAOB Public Company Accounting Oversight Board SAB Staff Accounting Bulletin SEC Securities and Exchange Commission SOX Sarbanes Oxley Act Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 34

35 Resources A Roadmap to SEC Comment Letter Considerations, Including Industry Insights Heads Up-Cyber Threat Considerations Related to Implementation of Internal Accounting Controls Heads Up SEC Comments Reflect Registrants Efforts to Implement ASC 606 Heads Up SEC Issues Final Rule That Updates and Simplifies its Disclosure Requirements Heads Up SEC Proposes Disclosure Simplification and Relief Related to Guarantors and Collateralizations of Securities Heads Up SEC Expands Eligibility for Smaller Reporting Company Classification Financial Reporting Alert Clarifying the Interim Stockholders Equity and Effective Date Requirements in the SEC s Final Rule on Disclosure Simplification Heads up At Lease There are Answers to Transition Questions Accounting Round Up Third Quarter 2018 Roadmap Series Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 35

36 Contact information Bob Uhl Partner Deloitte & Touche LLP Connect with me on LinkedIn Doug Rand Senior Manager Deloitte & Touche LLP Connect with me on LinkedIn Hero Alimchandani Managing Director Deloitte & Touche LLP Connect with me on LinkedIn Marla Lewis Senior Manager Deloitte & Touche LLP Connect with me on LinkedIn Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 38

37 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2018 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update The Dbriefs Financial Reporting series 39

38 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright 2018 Deloitte Development LLC. All rights reserved.