SEC hot topics: Year-end update The Dbriefs Financial Reporting series

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Deloitte & Touche LLP Courtney Sachtleben, Partner, Deloitte & Touche

1 SEC hot topics: Year-end update The Dbriefs Financial Reporting series Robert Uhl, Partner, Deloitte & Touche LLP Lisa Mitrovich, Partner, Deloitte & Touche LLP Courtney Sachtleben, Partner, Deloitte & Touche LLP Hero Alimchandani, Managing Director, Deloitte & Touche LLP November 13, 2017

2 Agenda SEC priorities and agenda Disclosure effectiveness Non-GAAP measures Office of the Chief Accountant Areas of focus SEC review process SEC comment trends Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 2

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.

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 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 3

4 Poll question #1 Deloitte added five new titles to their Roadmap Series through October Please indicate the one that would interest/pertain to you the most: A Roadmap to Segment Reporting A Roadmap to Accounting for Asset Acquisitions A Roadmap to Distinguishing Liabilities from Equity A Roadmap to Foreign Currency Transactions and Translations A Roadmap to Accounting for Noncontrolling Interests Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 4

SEC structure Nominated Nominated Robert J. Jackson, Jr.

Piwowar Economic and Risk Analysis Corporation Finance Bill

Office of Chief Accountant OCA Wes Bricker 22 other offices

Industry AD Group 10 other AD groups Nominated positions to be

gov/corpfin/article/filing-review-process---corp-fin.

6 SEC structure Nominated Nominated Robert J. Jackson, Jr. Hester Peirce Chairman Clayton Commissioner Stein Commissioner Piwowar Economic and Risk Analysis Corporation Finance Bill Hinman Investment Management Trading & Markets Enforcement Office of Chief Accountant OCA Wes Bricker 22 other offices Corp Fin Office of the Chief Accountant Mark Kronforst Industry AD Group 10 other AD groups Nominated positions to be confirmed by the Senate Source: Information from Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 6

7 SEC priorities and agenda Capital formation, IPO and M&A focus Expansion of certain JOBS Act benefits to all IPOs Dodd-Frank rulemaking CEO Pay Ratio Rule Approach to enforcement Cybersecurity PCAOB Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 7

8 Poll question #2 The SEC Chairman, Jay Clayton, laid out his agenda this past summer, out of the items listed below, which do you believe will be the most impactful? Capital Formation and expansion of JOBS Act benefits Implementation and rule-making around Dodd-Frank Approach to Enforcement Cybersecurity PCAOB Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 8

10 Disclosure effectiveness Objective A broad-based review of the rules Provide better information to investors Eliminate duplicative and outdated disclosures Leveraging new technologies Focus on material disclosures Reduce burden on preparers Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 10

11 Disclosure effectiveness Key rulemaking activities Regulation S-X Regulation S-K Other Request for comment Other entity financial statements, November 2015 Concept release on Business and Financial Disclosure requirements, April 2016 Modernize/simplify certain S-K requirements, October 2017 Disclosure Update and Simplification proposed rule, July 2016 Amendments to Smaller Reporting Company Definition proposed rule, June 2016 Potential changes to Industry Guide 3, Statistical Disclosure by Bank Holding Companies, March 2017 Potential changes to Industry Guide 7, Mining Operations, June 2016 Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 11

12 Disclosure effectiveness S-K Proposed Rule Based on the recommendations in the Report on Modernization and Simplification of Reg. S-K Specific revisions to a limited group of disclosures including: MD&A Description of Property Risk Factors Hyperlinks and cross referencing Comments due 60 days after publication in the Federal Register January 2 What is next? Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 12

13 Poll question #3 The biggest obstacle to improving disclosure effectiveness is: The legal environment Cultural change required at the SEC Investor advocate groups Accounting standard-setters PCAOB/Auditors Other Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 13

15 Non-GAAP measures Evolution of non-gaap measure rules and regulations SEC issues Regulation G and S-K Item 10(e) SEC increases focus on non-gaap measures as measures increase in use and prominence SEC issues cautionary advice to registrants Compliance & Disclosure Interpretations (C&DIs) issued by SEC New and updated C&DIs issued by SEC New C&DIs and issued Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 15

16 Non-GAAP Measures What to ask? Misleading or prohibited? Clear reconciliation, appropriate adjustments? Balanced and not egregious? Is it less prominent and presented with the most directly comparable GAAP measure? Purpose & usage disclosures? Defined, described and labeled as non- GAAP? Consistent policy around non-gaap; changes disclosed? Follow Reg G for any public disclosure; 8-K Item 2.02 for furnished information; Reg S-K Item 10(e) for SEC filings. Disclosure, controls & procedures around non-gaap? Audit committee oversight? Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 16

17 Non-GAAP measures Recent trends one year after the C&DIs SEC comments steady; drop in some areas Fewer Prominence issues Tailored accounting principles Non-GAAP Liquidity vs. performance measures Legal and restructuring adjustments Focus on egregious measures Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 17

18 Poll question #4 What is the most important reason for reporting non-gaap measures in earnings releases? To provide a more comprehensive picture of a company s finances To provide useful supplemental information to investors and shareholders Opportunity to define financial measures by industry to achieve some consistency among companies To provide insight into items that might be impacting comparability Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 18

20 Office of the Chief Accountant (OCA) Areas of focus New GAAP Standards Revenue Recognition Leases Credit Impairment (CECL) ICFR New GAAP standards COSO framework Audit profession PCAOB standard setting Auditor independence Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 20

21 Office of the Chief Accountant (OCA) New GAAP standards Keep going/get going ICFR Transition disclosures (SAB 74) New disclosure requirements Reasonable judgment Audit committees Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 21

22 Office of the Chief Accountant (OCA) Revenue recognition Identifying a contract Disclosures Identifying performance obligations Consultation themes Principal versus agent Measuring progress Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 22

23 Polling question #5 Is your organization or client ready to adopt the new revenue standard? Yes, we are ready to go No, resource constraints have delayed the process No, still resolving open questions No, a combination of issues are delaying implementation Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 23

25 SEC review process Filing reviews All issuers reviewed at least once every 3 years Focus on the largest registrants that comprise a large portion of the market cap Percentage of issuers reviewed: FY11 FY12 FY13 FY14 FY15 FY16 48% 48% 52% 52% 51% 56% Not all reviews result in comment letters Staff is listening to analyst/earnings calls, reviewing press releases, websites, social media Comments are posted to EDGAR 20 days after completion of review Reviews with comment letters 2,093 1,755 1,475 1,224 1, Review year Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 25

26 SEC comment letter trends Number of days to complete a review Average Days to complete review % 10% 8% 8% 5% 5% 6% 7% 13% 12% 13% 15% 30% 31% 35% 31% 9% 34% 4% 3% % 36% 44% 44% 50% Review year 121+ days days days days 1 30 days Source: Information in the table is derived from data provided by Audit Analytics, includes comments related to Forms 10-K and 10-Q, as well as related amendments, for reviews that have been closed. Review year information includes comments for the 12-month periods ended July 31 for each year. The number of days to complete a review was calculated by determining the number of days between the date of the last letter (SEC Closing Communications are included) and the date of the first letter. Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 26

27 Poll question #6 Has your organization or client ever received oral comments from the SEC? Yes No Unaware of such comments Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 27

29 SEC comment letter trends: Summary Twelve Months ended July 31, 2017 Topic Percentage of All Reviews Rank Non-GAAP measures 43% 1 1 MD&A: Results of operations 18% - Critical accounting policies and estimates 7% - Liquidity 6% - Contractual obligations 2% Fair Value 14% 3 - Segment reporting 13% 4 - Revenue recognition 11% 5 - Intangible assets and goodwill 9% 6 1 Income tax 9% 7 2 State sponsors of terrorism 8% 8 8 Signatures, exhibits or agreements 7% 9 - Acquisitions, mergers and business combinations 7% 10 2 Change in Rank from Prior Year Comment Letter trend information was derived from data provided by Audit Analytics based on the percentage of all comment-letter-yielding Form 10-K and 10-Q reviews that include a comment on topic. Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 29

SEC comment letter trends Areas of focus MD&A Risks, trends and uncertainties early-warning disclosures Results of operations Enhanced liquidity and capital resources, critical accounting policy

30 SEC comment letter trends Areas of focus MD&A Risks, trends and uncertainties early-warning disclosures Results of operations Enhanced liquidity and capital resources, critical accounting policy disclosures, contractual obligations Consistency with other communications Focus on clarity (e.g., use of tables and charts) Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 30

SEC comment letter trends Areas of focus Metrics Clearly define metrics and explain how calculated Explain how used by management and why important to investors Describe how a metric

31 SEC comment letter trends Areas of focus Metrics Clearly define metrics and explain how calculated Explain how used by management and why important to investors Describe how a metric is related to current or future results of operations Discussion example: Technology IPOs Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 31

32 SEC comment letter trends Areas of focus Fair value Valuation techniques and inputs Use of third-party pricing services Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 32

33 SEC comment letter trends Areas of focus Segments Identification of operating segments Aggregation of operating segments Entity-wide disclosures Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 33

SEC comment letter trends Areas of focus Revenue recognition Disclosures, including SAB 74 Multiple element arrangements Principal-versus-agent considerations

34 SEC comment letter trends Areas of focus Revenue recognition Disclosures, including SAB 74 Multiple element arrangements Principal-versus-agent considerations Long-term construction-type and production-type contracts Milestone method Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 34

35 SEC comment letter trends Areas of focus Other areas Intangible assets and goodwill Income taxes Business combinations Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 35

36 SEC 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 Do not agree to include a disclosure in future filings solely to expedite completion of a review Communicate, early on if a comment concerns an immaterial matter Do not analogize to other registrants fact patterns Give the SEC time to appropriately evaluate substantive new information during the review process Prefiling letter process SEC s Office of the Chief Accountant Requests for accounting and auditing interpretations Division of Corporation Finance s Office of the Chief Accountant Request for interpretations, accommodations, or waivers of financial reporting and disclosure requirements Staff reminders: Focus on relevant facts Provide solutions and adequate support for the proposals Show letter to auditors and have them weigh in before sending Refer to the FRM for SEC contacts Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 36

37 Poll question #7 What is your level of familiarity with our annual SEC comment letter publication? I read each year s publication from cover to cover I occasionally use it when preparing filings I am aware that it exists, but have used it infrequently I will use it now that I m aware of it None/Not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 37

39 Contact information Robert Uhl Audit & Assurance Partner Deloitte & Touche LLP Connect with me on LinkedIn Courtney Sachtleben Audit & Assurance Partner Deloitte & Touche LLP Connect with me on LinkedIn Lisa Mitrovich Audit & Assurance Partner Deloitte & Touche LLP Connect with me on LinkedIn Hero Alimchandani Audit & Assurance Managing Director Deloitte & Touche LLP Connect with me on LinkedIn Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 39

40 Join us December 12 at 2 p.m. ET as our Financial Reporting series presents: Quarterly accounting round Up: An update on important developments Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 40

41 Acronyms used in presentation C&DI: Compliance & Disclosure Initiatives CODM: Chief Operating Decision Maker EDGAR: Electronic, Data Gathering, Analysis and Retrieval FASB: Financial Accounting Standards Board FAST: Fixing America s Surface Transportation Act HTML: Hypertext Markup Language ICFR: Internal Control over Financial Reporting IPO: Initial Public Offering JOBS: Jumpstart Our Business Startups M&A: Mergers & Acquisitions MD&A: Management Discussion & Analysis OCA: Office of the Chief Accountant PCAOB: Public Company Accounting Oversight Board SEC: Securities and Exchange Commission XBRL: Extensible Business Reporting Language Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 41

42 Resources SEC Comment Letter Publication Roadmap to Non-GAAP Financial Measures Roadmap Publications Heads Up SEC Makes Nonpublic Review Process for Draft IPOs and Initial Registration Statements Available to All Companies Heads Up SEC Issues New and Revised Guidance to Clarify its CEO Pay Ratio Rule Heads Up SEC Issues Proposed Rule to Modernize and Simplify Certain Regulation S-K Requirements Heads Up Crisis Averted Heads Up The New Revenue Standard Are you Still Assessing the Impact? Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 42

43 Eligible viewers may now download CPE certificates. Click the CPE icon in the dock at the bottom of your screen. CPE Copyright 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 43

44 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 2017 Deloitte Development LLC. All rights reserved. SEC hot topics: Year-end update 44

45 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. Please see for a detailed description of DTTL and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2017 Deloitte Development LLC. All rights reserved.