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SEC Staff Views & Speeches - Page 2

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SEC Staff Speech: Addressing Implementation Matters to Improve Financial Reporting by Sagar Teotia, Deputy Chief Accountant 

SEC Staff Speech: Governance and Transparency at the Commission and in Our Markets by Chairman Jay Clayton 

SEC Staff Speech: Remarks at FINRA and Columbia University Market Structure Conference by Commissioner Michael S. Piwowar 

SEC Staff Views: Division of Corporation Finance - Financial Reporting Manual 

SEC Staff Views: Final Report of the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies 

SEC Staff Views: Division of Corporation Finance Guidance on Calculation of Pay Ratio Disclosures 

SEC Staff Speech, Remarks before the AICPA National Conference on Banks & Savings Institutions: Advancing High-Quality Financial Reporting in Our Financial and Capital Markets by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant 

SEC Staff Views: Staff Accounting Bulletin No. 116 

SEC Staff Speech - Opening Remarks at the National Compliance Outreach Program for Broker-Dealers by Chairman Jay Clayton 

SEC Issues Staff Speech: Lighting Our Capital Markets by Commissioner, Kara M. Stein

SEC Issues Staff Speech: Remarks at the Economic Club of New York by Chairman Jay Clayton

SEC Staff Views: Draft Registration Statement Processing Procedures Expanded

SEC Issues Staff Speech: Market Fragility and Interconnectedness in the Asset Management Industry by Scott W. Bauguess, Acting Director and Acting Chief Economist, DERA

SEC Issues Staff Speech: The Role of Big Data, Machine Learning, and AI in Assessing Risks - A Regulatory Perspective by Scott W. Bauguess, Acting Director and Acting Economist, DERA

SEC Issues Staff Speech: Keynote Address before the 2017 Journal of Accounting and Public Policy Conference - "The Interaction between Regulatory Institutions and Accounting: A Public Policy Perspective" by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant

SEC Staff Speech: Opening Remarks at SEC-NYU Dialogue on Securities Market Registration: Reviving the U.S. IPO Market by Commissioner Michael S. Piwowar 

SEC Staff Speech: Opening Remarks at 2017 SEC/NASAA Annual Section 19(d) Conference by Commissioner Michael S. Piwowar

SEC Issues Staff Speech: Enhancing the Demand for IPOs by Rick A. Fleming, Investor Advocate 

SEC Staff Speech: Remarks before the Bloomberg BNA Conference on Revenue Recognition by Sylvia E. Alicea, Professional Accounting Fellow, Office of the Chief Accountant 

SEC Staff Speech: Remarks before the 2017 Baruch College Financial Reporting Conference: "Advancing Our Capital Markets with High-Quality Information" by Wesley R. Bricker, Chief Accountant 

Articles

SEC Staff Speech: Addressing Implementation Matters to Improve Financial Reporting by Sagar Teotia, Deputy Chief Accountant

Summary - Sagar Teotia, Deputy Chief Accountant of the SEC, recently spoke about the implementation new GAAP standards on revenue recognition, leases, and measurement of credit losses on financial instruments. Teotia noted that while "there is significantly more work to be done, a meaningful amount of progress has been made towards implementation and the efforts to date have been a true collaborative effort by preparers, auditors, audit committees, standard setters, and regulators, and has been done both domestically and internationally."
 
Implementation Observations
Teotia outlined the following six broad observations regarding the new GAAP standards:
  • Keep going, keep going. There has been a significant amount of progress made by many companies. To these companies, Teotia encouraged each to keep the momentum and "finish strong" with revenue implementation. For those companies that may be in the earlier stages of your implementation efforts, Teotia encouraged them to significantly ramp up efforts.
  • Internal control over financial reporting. The new GAAP standards will most likely impact internal control over financial reporting. It takes time of course to implement internal control changes. This is one of the many reasons it is critical to stay on top of raising and resolving implementation and application issues.
  • Transition Disclosures. On a number of occasions, the SEC staff has emphasized the importance of providing transition disclosures that are articulated in Staff Accounting Bulletin ("SAB") No. 74. These disclosures should reflect the state of companies' implementation efforts. As SAB 74 intended, the SEC expects companies to be transparent in their disclosure as to where the company is in its implementation progress.
  • Disclosures within the New GAAP Standards. Each of the new GAAP standards requires disclosures that will provide investors with useful information. As we are now moving closer to the effective date, if you have not started work on the required revenue disclosures - such as the disclosure of remaining performance obligations and disaggregation of revenue - you are at risk of falling behind.
  • Importance of Reasonable Judgment. The SEC's Office of the Chief Accountant (OCA) staff will continue to accept reasonable judgments in the application of the new GAAP standards. OCA has already answered numerous pre-filing consultation questions regarding the new GAAP standards where it has accepted reasonable judgments. This point underscores the importance for companies to put in place a good implementation process that enables them to apply sound judgment.
  • Role of Audit Committees in the Implementation of the New GAAP Standards. The process of implementing the new GAAP standards is a collaborative effort from different stakeholders, and the importance of the audit committee in promoting an environment for management's successful implementation of the new GAAP standards cannot be overstated. Audit committees should continue to set the tone for the adoption of the new GAAP standards. This should include actively monitoring the implementation efforts, including taking the time to understand, and assess the quality and status of implementation.
Implementation of Revenue Recognition Standard
OCA observes that some companies have chosen to early adopt and are getting the information to investors now. The SEC staff applauds their efforts and is encouraged by their progress and commitment to providing transparency to their investors and other users of their financial statements. For those whose implementation efforts haven't started or are still underway, the time until required application of the new standard is just a few months away.
 
As companies finalize their company-specific accounting policies and prepare disclosures, OCA staff continues to be available for consultation on a formal or informal basis, as needed, to both domestic and foreign registrants. However, to avoid a massive backlog at the end of the year, which would potentially be a detriment to all stakeholders, the time for those questions is now.
 
OCA has stressed the importance of SAB 74 disclosures, including any expected material impact on company financials. The assessment of the materiality of the new revenue standard must include consideration of the new required disclosures. In addition, as we approach the fourth quarter of 2017, it is critical for the transition disclosures to be as informative as possible to the users of the financial statements.
 
Implementation of Lease Standard
To the extent a company has not yet commenced with its implementation efforts for leases, OCA encourages companies to consider beginning its leases implementation efforts now. While this is not necessarily required, sequential implementation of the revenue recognition standard followed by the leases standard may leave a company in a situation where it finds that it has potentially limited its time to adopt the new leases standard and has limited its time to formulate reasonable judgments and assess potential changes needed in ICFR.
 
Given the significant amount of work done on revenue, there are many lessons learned that can be leveraged to more successfully implement the leases standard. A couple of the lessons learned that are relevant to leases include:
  • Companies should have appropriate resources to evaluate lease arrangements and properly apply the principles of the new standard.
  • The new leases standard will require judgments. This highlights the importance of another element of a company's control environment - setting the right "tone at the top" and expectations for responsible conduct throughout the organization.
Implementation of Credit Losses Standard
This standard clearly has a significant impact on banks and other financial institutions, but the impact goes beyond any particular industry group. The new credit losses standard represents a change in how entities account for credit losses. Implementation of the new standard is of course important and successful implementation requires companies to allocate sufficient resources and develop or engage appropriate financial reporting competencies in this area.
 
A few observations OCA has learned from its monitoring activities of the implementation of the credit losses standard include:
  • The importance of coordination among all stakeholders in the transition and implementation activities.
  • Registrants are making progress on implementation and continue to elevate interpretative concerns to OCA.
  • The TRG remains a forum for stakeholders to potentially work through and address implementation issues. As preparers, industry groups, and other stakeholders continue their implementation efforts, I would encourage them to consider referring challenging issues to the TRG.
  • Consistent with revenue recognition and leases, OCA will accept well-reasoned judgments in the application of this new standard.
Teotia also noted that Jonathan Wiggins has been appointed as the new Senior Associate Chief Accountant in the Accounting Group. Jonathan will be joining Kevin Vaughn as one of two Senior Associate Chief Accountants in the Accounting Group.
For more information, click here.
 
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SEC Staff Speech: Governance and Transparency at the Commission and in Our Markets by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton spoke about the SEC's agenda, focusing on key aspects related to governance and transparency.
 
SEC's Near-Term Agenda
The next SEC near-term agenda will be published in coming months. Clayton noted that "the SEC's near-term agenda has swelled over the years. The Commission has limited resources, and rulemaking is, by its very nature, time- and resource-intensive. As a result, if all, or substantially all, of the rulemakings listed on previous near-term agendas were to evolve through to adoption, the process would take years." Clayton noted that the SEC's next near-term agenda, "which will be published as part of the federal government's Unified Agenda in coming months, will be shorter than in the recent past."
 
SEC's Longer-term Agenda
Regarding the SEC's approach to its five-year strategic plan, Clayton noted that the SEC is applying a similar streamlining approach. When the SEC completes its new strategic plan, Clayton expects the numbers of projects on this longer-term plan will be noticeably smaller and will reflect, on an agency-wide basis the:
  • Key challenges and trends facing U.S. markets and regulatory programs;
  • Agency's most important strategic priorities; and
  • Initiatives the SEC is pursuing to help attain those goals.
Clayton discussed anticipated efforts on the following specific longer-term agenda items:
  • Shareholder engagement and the proxy process. Given the core role of the proxy process in public company governance, Clayton believes the SEC should be "lifting the hood" and taking a hard look at whether the needs of shareholders and companies are being met. The SEC should consider whether in its rulemaking processes the views and fundamental interests of long-term retail investors are being advocated fully and clearly, either by individual investors or groups that represent them.
  • Shareholder proposals. The shareholder proposal process is a corporate governance issue that is subject to diverse and deeply held beliefs. While Clayton is supportive of rules that allow shareholder proposals, he is  searching for a way to reconcile the multiple positions and find common ground. History has shown that shareholder proposals can gain traction and lead to corporate governance changes that better track the long-term interests of Main Street investors. They also create costs, including out-of-pocket costs and the use of board and management time that otherwise could be devoted to the operation of the company itself. Questions exist about the appropriate level of ownership that should be required to submit shareholder proposals, as well as whether our current resubmission thresholds are too low. The concern is that the thresholds allow proposals that shareholders previously rejected to be repeatedly resubmitted even though they receive a small fraction of shareholder support.
Transparency in Securities Markets
Clayton discussed efforts to help deter, mitigate, and eliminate misconduct through transparency and other measures. Clayton highlighted areas he noted "that have proven over time to be fertile ground for fraud on investors. The SEC may not yet have policy or rulemaking answers in these areas, but we are on the lookout for ways to fight the type of opacity that can create an environment conducive to misconduct." Areas discussed by Clayton included:
  • Fee disclosure. The SEC's Enforcement Division will continue to be active in pursuing cases where hidden or inappropriate fees that can harm investors are at issue, but will also explore whether more can be done to clarify fee disclosures made to retail investors and, thereby, deter and reduce the opportunities for misbehavior.
  • Penny stocks. The SEC's enforcement record also shows that many penny stocks have a conspicuous lack of transparency with respect to their financial condition and other key business information. The SEC will continue to vigorously pursue bad actors in the penny stock market, but we also will examine ways to bring more light into the opaque aspects of this market.
  • Initial coin offerings. There is a distinct lack of information about many online platforms that list and trade virtual coins or tokens offered and sold in Initial Coin Offerings (ICOs). The SEC recently warned that instruments, such as "tokens," offered and sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws. The SEC will continue to seek clarity for investors on how tokens are listed on these exchanges and the standards for listing; how tokens are valued; and what protections are in place for market integrity and investor protection.
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech: Remarks at FINRA and Columbia University Market Structure Conference by Commissioner Michael S. Piwowar

Summary - SEC Commissioner Michael S. Piwowar recently spoke about the SEC's potential future efforts in the market structure space. Piwowar noted that "market structure really represents the gears that turn the clock of the capital markets. From the moment we get up in the morning, until the moment we turn out the lights at night, we rely on clocks to order our days. Yet most people will never open a clock to inspect the gears that make it work, much less comprehend the operation of the complex and interrelated system sitting behind it. In the same way, most investors and business owners who rely on the capital markets will never dig into the details of market structure. They may never understand the way that tick sizes, the order protection rule, or maker-taker pricing function. But they rely on them every day to raise capital, invest in securities, and save for retirement. Thus, the details of market structure matter, not just because academics, industry participants, and regulators like to debate them, but because they ensure the smooth operation of our complex financial markets."
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Division of Corporation Finance - Financial Reporting Manual

Summary - The staff in the SEC's Division of Corporation Finance (Corp Fin) has updated certain guidance in its Financial Reporting Manual (Manual). Updates to the Manual include revisions to:

  • Describe communications with Corp Fin's Office of the Chief Accountant and provide contact information;
  • Clarify that questions about applying the guidance on abbreviated financial statements to a predecessor entity should be directed to Corp Fin's Office of the Chief Accountant; and
  • Clarify the guidance on the omission of financial information from draft and filed registration statements.

The Manual was originally prepared by the Corp Fin staff to serve as internal guidance but later made public in an effort to increase transparency of informal staff interpretations. Because of its informal nature, the Manual does not necessarily contain a discussion of all material considerations necessary to reach an accounting or disclosure conclusion. Such conclusions about a particular transaction are very fact dependent and require careful analysis of the transaction and of the relevant authoritative accounting literature and SEC requirements. The information in the Manual is non-authoritative.

For more information, click here.

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SEC Staff Views: Final Report of the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies

Summary - The SEC's Advisory Committee on Small and Emerging Companies has issued a final report. The report was prepared to memorialize the recommendations made by the Committee over the past six years and to identify areas for continued focus.

For more information, click here.

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SEC Staff Views: Division of Corporation Finance Guidance on Calculation of Pay Ratio Disclosures

Summary - The staff in the Division of Corporation Finance (Corp Fin) has issued guidance about the pay ratio rule that includes examples illustrating how reasonable estimates and statistical methodologies may be used, is intended to assist companies with their compliance efforts and reduce the costs associated with preparing disclosures. Corp Fin encourages companies to contact the staff if additional interpretive questions arise as the compliance date approaches.

For more information, click here.

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SEC Staff Speech, Remarks before the AICPA National Conference on Banks & Savings Institutions: Advancing High-Quality Financial Reporting in Our Financial and Capital Markets by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant

Summary - SEC Chief Accountant Wesley R. Bricker recently spoke before a banking and savings institutions conference in Washington, D.C. Mr. Bricker's remarks touched on several current issues the SEC's Office of the Chief Accountant (OCA) staff has been focused on recently, including:

  • The role of financial reporting in our financial and capital markets;
  • Recent accounting and auditing standard setting; and
  • Reminders regarding the importance of broker-dealer compliance as well as regulatory and financial reporting requirements relating to initial coin offerings.
Highlights of Remarks:
  • OCA remains focused on the importance of high quality financial reporting, which is essential to the financial services sector and, more generally, to our financial and capital markets system. Banks, in particular, are both users and providers of financial reporting information as they intermediate between those who have funds to save or invest and those who need financing.
  • While banking involves risk-taking, a number of the risks relate directly to the value provided by banks to their customers and the wider economy. Managing and pricing these risks depends, in part, on reliable financial information. As accountants, we need to continue to challenge ourselves to provide the nature and quality of financial information that investors need.
  • As to implementation of the FASB's new credit losses standard, companies will need to evaluate the specific impact of the standard and apply judgment in preparing an estimate of the overall current expected credit losses.
  • Mr. Bricker anticipates that relevant portions of the Commission and SEC staff guidance will continue to apply to the development, documentation, and application of a systematic methodology for determining an estimate of current expected credit losses, which under the new standard, will apply to an entity's estimate of losses over the entire contractual life.
  • The OCA staff is actively monitoring the transition period activities related to the credit losses standard and continues to evaluate any issues identified by various stakeholders post issuance. OCA will continue to respect well-reasoned, practical judgments that are grounded in the new standard and are consistent with Commission requirements and SEC staff guidance. Transition plans for the new standard should include initiatives for identifying and implementing any necessary changes to internal control over financial reporting.
Mr. Bricker also commented on the SEC's report on its investigation of an offering of digital tokens by an unincorporated virtual organization. The report makes clear that the federal securities laws apply to those who offer and sell securities in the U.S., regardless of whether the issuing entity is a traditional company or a decentralized autonomous organization, whether those securities are purchased using U.S. dollars or virtual currencies, or whether they are distributed in certificated form or through distributed ledger technology.
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Accounting Bulletin No. 116

Summary - The SEC's Office of the Chief Accountant and Division of Corporation Finance released Staff Accounting Bulletin (SAB) No. 116 that brings existing SEC staff guidance into conformity with the FASB's adoption of and amendments to ASC Topic 606. The SAB modifies:

  • SAB Topic 13, Revenue Recognition;
  • SAB Topic 8, Retail Companies; and
  • Section A, Operating-Differential Subsidies of SAB Topic 11, Miscellaneous Disclosure.
The guidance in SAB 116 applies upon a registrant's adoption of ASC Topic 606. Until such time, the SAB states that registrants should continue referring to prior staff guidance on revenue recognition.
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Guidance - SEC Updates Interpretations

Summary - The staff in the Division of Corporation Finance (Corp Fin) has updated the following Compliance and Disclosure Interpretations (C&DIs): 

  • Fixing America's Surface Transportation (FAST) Act (Updated Questions 1); and
  • Securities Act Forms (New Questions 101.04 and 101.05).
These C&DIs provide the Corp Fin staff's interpretations related to SEC forms, rules, and regulations and are updated periodically. The updates to these C&DIs focus in on financial information requirements for Emerging Growth Companies. 
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.


SEC Staff Speech - Opening Remarks at the National Compliance Outreach Program for Broker-Dealers by Chairman Jay Clayton 

Summary - SEC Chairman, Jay Clayton, recently opened the SEC's National Compliance Outreach Program for Broker-Dealers with remarks on the importance of coordination among regulators in the oversight of broker-dealers. Mr. Clayton noted that broker-dealer regulation "is one of many areas where such regulatory coordination is vital. And I am pleased to say that strong coordination between the SEC and FINRA is particularly evident here today. Indeed, this is the sixth year that the SEC and FINRA have teamed up for this event, which provides an open forum for regulators - as well as broker-dealer compliance, audit and other professionals - to share information about strong compliance practices."

Chairman Clayton noted that not only is coordination between regulators essential - but coordination and open communication between regulators and the industries that they regulate is also vitally important. To be effective, regulators must continuously invest in our knowledge and understanding of the markets and individuals we regulate. This current knowledge base is critical to the SEC.

For more information, click here.

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SEC Issues Staff Speech: Lighting Our Capital Markets by Commissioner, Kara M. Stein

Summary - SEC Commissioner Kara M. Stein recently provided her thoughts on the importance of healthy capital markets. Ms. Stein noted that "strong and resilient markets are vital to having a strong and resilient economy." Topics discussed by Commissioner Stein included:

  • Technology and communications and investment opportunities;
  • Complexity in capital markets; and
  • Keeping the markets health or both issuers and investors.

For more information, click here.

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SEC Issues Staff Speech: Remarks at the Economic Club of New York by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently provided principles that will guide his SEC Chairmanship. Those principles are:

  • The SEC's mission is its touchstone;
  • SEC analysis starts and ends with the long-term interests of the Main Street investor;
  • The SEC's historic approach to regulation is sound;
  • Regulatory actions drive change, and change can have lasting effects;
  • As markets evolve, so must the SEC;
  • Effective rulemaking does not end with rule adoption;
  • The costs of a rule now often include the cost of demonstrating compliance; and
  • Coordination is key.

Chairman Clayton went on to discuss how he intends to put these principles into practice during his tenure. Highlights of his remarks in this area included:

  • I fully intend to continue deploying significant resources to root out fraud and shady practices in the markets, particularly in areas where Main Street investors are most exposed.
  • Public companies have a clear obligation to disclose material information about cyber risks and cyber events. I expect them to take this requirement seriously and to also recognize that the cyber space has many bad actors, including nation states that have resources far beyond anything a single company can muster. Being a victim of a cyber-penetration is not, in itself, an excuse. But, I think we need to be cautious about punishing responsible companies who nevertheless are victims of sophisticated cyber penetrations.
  • Private markets operate well in many sectors and, in these areas, they offer a very attractive alternative to the public markets. I believe we need to increase the attractiveness of our public capital markets without adversely affecting the availability of capital from our private markets.
  • There are circumstances in which the Commission's reporting rules may require publicly traded companies to make disclosures that are burdensome to generate, but may not be material to the total mix of information available to investors. Under Rule 3-13 of Regulation S-X, issuers can request modifications to their financial reporting requirements in these situations. I want to encourage companies to consider whether such modifications may be helpful in connection with their capital raising activities and assure you that SEC staff is placing a high priority on responding with timely guidance.

In his remarks, Chairman Clayton referenced rulemaking under the Dodd-Frank Act, noting that under "Chair White's leadership, the Commission made great strides, adopting a number of the rules with which it was charged. Admittedly, there are still Dodd-Frank mandates to be completed. But I have inherited an agency with considerably more discretion over its agenda."

For more information, click here.

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SEC Staff Views: Draft Registration Statement Processing Procedures Expanded

Summary - The SEC announced that the Division of Corporation Finance (Corp Fin) will permit all companies to submit draft registration statements relating to initial public offerings for review on a non-public basis. This process will be available for IPOs as well as most offerings made in the first year after a company has entered the public reporting system. It will take effect on July 10, 2017.

Permitting all companies to submit registration statements for non-public review, similar to the benefit used by emerging growth companies (EGC) under the JOBS Act, will provide companies with more flexibility to plan their offering. The non-public review process after the IPO reduces the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders. By requiring a public filing period prior to the launch of marketing, the process incorporates a feature of the EGC review process that provides an opportunity for the public to evaluate those offerings.

For more information, click here.

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SEC Issues Staff Speech: Market Fragility and Interconnectedness in the Asset Management Industry by Scott W. Bauguess, Acting Director and Acting Chief Economist, DERA

Summary - Scott W. Bauguess, Acting Chief Economist of the SEC, recently spoke about market fragility and interconnectedness in the asset management industry. Mr. Bauguess noted that the "relationship between asset management activities and financial stability risks has been a frequent topic of discussion among financial market participants and regulators in recent years. This discussion has arisen in light of the significant growth in the asset management industry and the increased focus on financial stability risks in the aftermath of the financial crisis." The remarks were intended to highlight the underlying economics of these issues to help provide a better understanding of their nature and significance. Topics discussed included:

  • Theories of financial stability risk in the asset management industry;
  • Market participant behaviors that keep regulators up at night;
  • Interconnectedness and liquidity management; and
  • Rules-based investing.

For more information, click here.

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SEC Issues Staff Speech: The Role of Big Data, Machine Learning, and AI in Assessing Risks - A Regulatory Perspective by Scott W. Bauguess, Acting Director and Acting Economist, DERA

Summary - Scott W. Bauguess, Acting Chief Economist of the SEC, recently spoke about the increasing use of artificial intelligence in the financial sector. Mr. Bauguess noted that "better known by its two-letter acronym 'AI,' artificial intelligence has been the fodder of science fiction writing for decades. But the technology underlying AI research has recently found applications in the financial sector, in a movement that falls under the banner of 'Fintech.' And the same underlying technology (machine learning and AI) is fueling the spinoff field of 'Regtech,' to make compliance and regulatory-related activities easier, faster, and more efficient."

Topics discussed by Mr. Bauguess included:

  • The science of machine learning and the rise of artificial intelligence;
  • The rise of machine learning at the SEC;
  • Use of natural language processing; and
  • The role of big data.

Regarding the use of big data, Mr. Bauguess noted that the SEC staff is "cognizant of the need to continually improve how we collect information from registrants and other market participants, whether it is information on security-based swaps, equity market transactions, corporate issuer financial disclosures, or investment company holdings. We consider many factors, such as the optimal reporting format, frequency of reporting, the most important data elements to include, and whether metadata should be collected by applying a taxonomy of definitions to the data. We consider these factors each and every time the staff makes a recommendation to the Commission for new rules, or amendments to existing rules, that require market participant or SEC-registrant reporting and disclosures."

For more information, click here.

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SEC Issues Staff Speech: Keynote Address before the 2017 Journal of Accounting and Public Policy Conference - "The Interaction between Regulatory Institutions and Accounting: A Public Policy Perspective" by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant

Summary - Wesley R. Bricker, Chief Accountant of the SEC, recently spoke about the importance of academic accounting research on SEC rulemaking and oversight. Mr. Bricker noted that academic research "is valuable in providing theories, testable hypotheses, and evidence that help us to understand issues we frequently encounter in our work." Mr. Bricker identified several areas he believes would be worthy of consideration for future academic research, including the following areas:

  • Financial accounting research which includes, in part, the relevance, reliability and quality of accounting information, accounting standard setting and application, and financial statement analysis.
  • The impact of non-authoritative application guidance from staff of standard setters, accounting firms, industry groups, and other stakeholders in shaping financial reporting.
  • The expected credit loss standards recently issued by the FASB and the IASB also offer additional opportunities for academic research. Researching the anticipated effect of the expected credit loss approach compared to today's incurred loss model under various scenarios could contribute to the level of understanding by companies, investors, and others about the quality of accounting information from the two accounting approaches.
  • There may be further fruitful opportunities for accounting research on the application of international accounting standards. Possible areas for further research include monitoring financial reports issued from jurisdictions that have not endorsed IFRS as issued by the IASB, or have done so in only a partial manner, in contributing to an understanding of the similarities and differences in financial reporting attributes and outcomes.
  • Furthering the existing research in the role of internal control over financial reporting (ICFR) in reducing the risk of material misstatements in financial statements. ICFR research may be poised to progress beyond initial exploration of the role of material weakness disclosures in capital markets, and explore deeper and more complex issues that underlie causes and consequences of potentially ineffective ICFR.
  • Examine the role of ICFR in the implementation of new accounting standards. In particular, papers could address the question of how different approaches to internal control over financial reporting certification and disclosures contribute to higher or lower incidence of material accounting misstatements with the new accounting standards over time.
  • Understanding of the flow and uses of financial reporting information, given the continuing changes from technology and capacity for data analytics. In doing so, it is vital to continue to understand information about the segments, disparate interests and financial reporting information needs of both professional and individual investors.
  • Reporting of information other than the financial statements, such as non-GAAP measures and non-financial metrics. The staff monitors compliance in this area to foster disclosure practices consistent with Commission rules. Academic research may deepen an understanding of the determinants and consequences of both non-GAAP measures and non-financial metrics as well.

For more information, click here.

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SEC Staff Speech: Opening Remarks at SEC-NYU Dialogue on Securities Market Registration: Reviving the U.S. IPO Market by Commissioner Michael S. Piwowar

Summary - SEC Commissioner Michael S. Piwowar recently spoke on reviving the U.S. IPO market. Mr. Piwowar noted that a "vibrant IPO market also allows retail investors to add economic exposure from growing firms and industries to their investment portfolios, either directly or through vehicles such as mutual funds. As such, investors can share in the wealth created by these companies and enhance their overall risk diversification." The importance of IPOs to the U.S. economy cannot be overstated. In a nutshell, a robust IPO market encourages entrepreneurship, facilitates growth, creates jobs, and fosters innovation, while providing attractive opportunities for investors to increase their wealth and mitigate risk.

For more information, click here.

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SEC Staff Speech: Opening Remarks at 2017 SEC/NASAA Annual Section 19(d) Conference by Commissioner Michael S. Piwowar

Summary - SEC Commissioners Kara Stein and Michael S. Piwowar recently spoke at an annual conference for federal and state securities regulators. Mr. Piwowar discussed the SEC's capital raising efforts, including new rules on securities registration exemptions and crowdfunding. Mr. Piwowar also discussed auditor independence, noting that these "rules reinforce the concept that independent auditors are key gatekeepers for high quality financial reporting." However, Mr. Piwowar cautioned that some entities, especially mutual funds, face substantial practical challenges related to one part of these rules, known as the "Loan Provision." The Loan Provision deems an auditor not to be independent if that auditor has received a loan from its audit client. The Loan Provision includes lending relationships between auditors and entities holding more than 10% of the audit client's equity securities. Thus, it is triggered even in situations where a lender may not be able to assert any influence over the entity whose shares it owns, including certain instances in which the lender holds the securities as a custodian or an omnibus account holder for its customers without beneficial ownership.

Mr. Piwowar provided that these situations may not have any effect on an auditor's objectivity and impartiality, because the lender does not have significant influence over the audit client. Yet these compliance challenges threaten to disrupt the operation of the asset management industry, which is relied upon to manage and invest trillions of dollars of investors' retirement savings.

For more information, click here.

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SEC Issues Staff Speech: Enhancing the Demand for IPOs by Rick A. Fleming, Investor Advocate

Summary - Rick A. Fleming, SEC Investor Advocate, recently discussed enhancing the demand for IPOs. Mr. Fleming highlighted the following important macro trends that, when taken together, could be a significant impediment to IPOs:

  • The number of individual investors who invest directly in stocks is relatively small and getting smaller.
  • Instead of owning stocks directly, the average person now invests through various types of funds.
  • At the same time that the assets under management of funds has exploded, the number of IPOs has fallen.
  • For institutional investors who are interested in smaller companies, private alternatives such as venture capital and private equity have become more accessible.

Mr. Fleming noted that to "explore whether there is a link between the shift to institutional investing and the decrease in IPO activity, I have begun to ask asset managers about their investments in IPOs and, more generally, in smaller public companies. In those conversations, I have discovered that, in general, institutional investors who engage in active management seem to have little interest in shares of micro- or small-cap public companies. This is largely due to liquidity concerns, which means that it is difficult to do trades of institutional size because there may not be enough buyers or sellers on the other side of the trade."

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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech: Remarks before the Bloomberg BNA Conference on Revenue Recognition by Sylvia E. Alicea, Professional Accounting Fellow, Office of the Chief Accountant

Summary - Sylvia E. Alicea recently spoke at a conference on revenue recognition and discussed the SEC's Office of Chief Accountant's (OCA's) strategy on application of the new revenue recognition standard. Ms. Alicea is a Professional Accounting Fellow in the OCA. Ms. Alicea noted that the OCA has a nine-person Revenue team that is executing the OCA's revenue recognition implementation strategy. Additionally, with the progression of implementation efforts to company-specific finalization of accounting positions, OCA continues to consult with registrants as registrants advance their implementation efforts.

Ms. Alicea shared some observations from recent OCA consultations with registrants on the implementation of the new revenue recognition standard. Highlights of these observations included:

  • The new revenue standard provides a definition of a contract, which encompasses enforceable rights and obligations. Registrants should carefully assess the specific facts and circumstances of each transaction - including all relevant contractual terms - and exercise reasonable judgment when identifying and evaluating each contract with its customers.
  • Certain registrants from different industries recently consulted with OCA regarding their application of the guidance for identifying performance obligations. While the industries and facts varied, some important recurring takeaways related to identifying the unit of account: (a) the concept of a "deliverable" under existing revenue guidance should not be presumed to be the same as the concept of a "performance obligation" under the new revenue standard; (b) while the staff did not object to the registrants' proposed accounting for the promised goods and services as a single performance obligation, the staff's views were based on the registrants' careful analysis of the promised goods and services and whether those goods and services were both "capable of being distinct" and "distinct within the context of the contract"; and (c) it's critical that preparers understand the underlying transaction, including their specific facts and circumstances and contractual terms, and then faithfully apply the principles of the new revenue standard.
  • OCA was recently consulted on whether the measure of progress should be adjusted for the cost of third-party services provided as part of a single performance obligation. The SEC staff would be skeptical of the broad application of this guidance to other types of arrangements.
  • The SEC staff has encouraged companies to provide transition disclosures to investors about the anticipated effects of adoption of the new revenue, leases and credit impairment standards. When a company does not know, or cannot reasonably estimate the expected financial statement impact, that fact should be disclosed. But, in these situations, the SEC staff expects a qualitative description of the effect of the new accounting policies, and a comparison to the company's current accounting to aid investors' understanding of the anticipated impact. It should also disclose the status of its implementation process and significant implementation matters yet to be addressed.
  • The transition disclosures should be subject to effective internal control over financial reporting. As management completes portions of its implementation plan for a new GAAP standard and develops an assessment of the anticipated impact of the standard, effective internal controls should be in place to timely identify disclosure content and to provide for appropriately informative disclosure to investors based on the information known at that time.
  • From a preliminary look at recent Forms 10-K and 10-Q filings, we continue to be encouraged by the number of companies that have enhanced their transition disclosures. However, the SEC staff observes that some companies indicate that the impact of the new revenue standard is not expected to be material.  The changes in the new revenue standard will impact nearly all companies. Even if the extent of change on the balance sheet or income statement is not deemed to be material, the related disclosures may be material.
  • Updating and maintaining internal controls will be particularly important as companies work through the implementation of significant new GAAP standards. Companies' implementation activities will require careful planning and execution, including careful evaluation of the specific facts and circumstances, to determine the appropriate application of new GAAP standards.
  • The transition to a new GAAP standard necessitates the need for management to carefully consider whether the transition (or consistent application of the standard once implemented) results in new risks or changes to previously identified risks, including fraud risks.

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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech: Remarks before the 2017 Baruch College Financial Reporting Conference: "Advancing Our Capital Markets with High-Quality Information" by Wesley R. Bricker, Chief Accountant

Summary - Wesley R. Bricker, Chief Accountant of the SEC, recently spoke at the 2017 Baruch College Financial Reporting Conference "Advancing Our Capital Markets with High-Quality Information." Mr. Bricker's comments included an update to the implementation of the new revenue recognition guidance. Highlights of Mr. Bricker's remarks included:

  • Certain companies have substantially completed their accounting analyses, are in process of thoughtfully analyzing and considering the required disclosures in the standard, and are also focused on developing sustainable processes and internal control over financial reporting. These companies should be commended for their efforts, and Mr. Bricker believes the diligence that they have demonstrated in implementing the new revenue standard will both benefit investors, and serve as a good model for all companies as the profession continues to implement other major GAAP standards over the next few years. Mr. Bricker acknowledged that some companies might still be behind in their implementation progress.
  • Mr. Bricker emphasized the importance of disclosures in the new revenue recognition standard. There are a number of significant new disclosures, and for some companies, getting ready to prepare them might be one of the more challenging parts of the implementation process. The SEC staff understands that for some companies, preparing the disclosures constitutes a separate work stream in their implementation plans. The staff has further observed that some of these disclosures may require coordination and interaction with various parts of the organization in order to compile the required information. Mr. Bricker urged companies to not wait until the end of the year before trying to get the data, systems, processes, and controls in place to make these disclosures. These disclosures are an important part of the new revenue standard for investors, and we urge companies to treat them as such and to allocate the appropriate time and resources to them.

Mr. Bricker also discussed several other topics, including the implementation of the new credit losses standard, maintaining frameworks for internal control over financial reporting, and controls over reporting other metrics. Highlights of Mr. Bricker' remarks included:

  • It is important to a successful implementation of the new standard on credit losses that stakeholders continue to invest the time and effort to identify any issues and submit them to the FASB staff for consideration for future Transition Resource Group meetings. Implementation questions related to this critically important standard need to be discussed in an open and transparent forum so that all stakeholders can have confidence in the process and can learn from the discussions among a diverse group of interested parties.
  • For investors to place full confidence in them, accounting standards must be perceived as being above political concerns, commercial interests, influence of special-interest groups, or bureaucratic convenience. Mr. Bricker voiced his concerns with recent advocating for implementation of the new credit losses standard to be put on hold, pending an analysis of its long-term macroeconomic effects. Mr. Bricker cautioned that if an individual or a group does not like the direction or the outcome of the FASB's standard-setting due process, they have appropriate forums to express their disagreement or doubt about an accounting change. However, at times it can appear that the methods used to express such disagreement or doubt could serve to undermine the independence of the FASB and its due process, and could distort the objectives of general purpose financial reporting standards.
  • The FASB developed the new credit losses standard in response to the needs of investors for more timely information about credit losses. By better anticipating credit losses, loan loss provisions under the new standard can provide investors with more timely information about the risks and economic conditions that affect providers of credit.
  • We should all keep in mind that the new credit losses standard applies to all industries, and banks are both providers of credit loss information when they report GAAP financial information as well as users of that information when their underwriting process considers information in a potential borrower's GAAP financial statements. It is critical that we get implementation of this standard right, and the time has come for us to focus our efforts even more towards achieving that objective.
  • Maintaining effective internal control over financial reporting is essential to the production of high-quality information for investors. While the SEC has not mandated the use of a particular framework to assess ICFR, most companies have selected the COSO framework. Although most registrants have made the transition to using the 2013 COSO framework, not all registrants have. Mr. Bricker encourages those remaining registrants that use COSO to adopt the 2013 COSO framework.
  • In addition to reporting non-GAAP measures, many companies also disclose key operating metrics, forecasts, and other kinds of reporting, which may represent important sources of information for investors and supplement the information provided by GAAP. Much of the recent experience with non-GAAP financial metrics also provides lessons for other kinds of reporting by companies. Similar to non-GAAP financial reporting, key operating metrics and forecasts may also be distorted via bias - for example, painting a potentially misleading picture - error, or fraud, all of which undermine the credibility of the reporting. Therefore, it is important that companies proactively and thoughtfully address risks to their reporting.
  • Companies should have adequate disclosure controls and procedures in place covering this other reporting. In some respects, these other reporting processes may require more steps than some GAAP processes, not fewer. When a company determines a supplemental reporting framework, it does not have the benefit of a standard setter's due process and must look to its own policies, audit committee, and other stakeholders for input.

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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission

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