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SEC Staff Views & Speeches - Page 3

Articles On This Page

A Framework of Trust by Commissioner Kara M. Stein 

Stock Buyout and Corporate Cashouts by Commissioner Robert J. Jackson Jr.

Remarks to the Institute of Chartered Accountants in England and Wales: "The Intersection of Financial Reporting and Innovation," by Wesley R. Bricker, Chief Accountant 

Progress is Being Made: Continued Focus on Addressing Implementation Matters by Sagar Teotia, Deputy Chief Accountant  

Keeping Shareholders on the Beat: A Call for a Considered Conversation about Mandatory Arbitration by Commissioner Robert J. Jackson Jr. 

Statement on Potentially Unlawful Online Platforms for Trading Digital Assets by Divisions of Enforcement and Trading and Markets 

Opening Remarks at the “SEC Speaks” Conference by Chairman Jay Clayton 

Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders by Rick Fleming, Investor Advocate 

Remarks at SEC Speaks: Increasing Product Complexity - What’s at Stake? by Commissioner Kara M. Stein 

Opening Remarks at the Securities Regulation Institute by Chairman Jay Clayton 

Opening Remarks to SEC-NYU Dialogue on Securities Markets #4: Shareholder Engagement by Chairman Jay Clayton 

SEC Staff Speech, Statement on Cryptocurrencies and Initial Coin Offerings by Chairman Jay Clayton 

SEC Staff Views: Staff Accounting Bulletin No. 117 

SEC Staff Speech, Remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market by Chairman Jay Clayton 

SEC Staff Speech, Reflections on the Past, Present, and Future of the SEC's Enforcement of the Foreign Corrupt Practices Act Steven R. Peikin, Co-Director, Enforcement Division 

SEC Staff Speech, Statement on Status of the Consolidated Audit Trail by Chairman Jay Clayton 

SEC Staff Speech, Remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant 

Articles

A Framework of Trust by Commissioner Kara M. Stein

Summary - SEC Commissioner Kara M. Stein recently discussed the important role rules in the investment markets play in building wealth. Stein highlighted uncertainties in investment markets given the large number of choices of investments. Stein indicated that the rules "govern investment markets are designed to address this uncertainty. They provide a framework for trust so that businesses can grow and savings aren’t either tucked under mattresses or lost to the dishonest." Topics discussed by Stein included:

  • More choices for investment as markets develop further;
  • The important impact technology is having on investment markets; and
  • The risk associated with more complex investment products.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Stock Buyout and Corporate Cashouts by Commissioner Robert J. Jackson Jr.

Summary - SEC Commissioner Robert J. Jackson, Jr. recently spoke about concerns he has with corporate stock buybacks. Jackson indicated that "there is clear evidence that a substantial number of corporate executives today use buybacks as a chance to cash out the shares of the company they received as executive pay." Jackson urged his fellow SEC Commissioners to update the agency's rules to limit executives from using stock buybacks to cash out from America’s companies. Topics discussed by Jackson included:

  • Stock buybacks and executive pay;
  • How executives use buybacks to cash out; and
  • A path forward to address the practice of executives using buybacks as a chance to sell their shares.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Remarks to the Institute of Chartered Accountants in England and Wales: "The Intersection of Financial Reporting and Innovation," by Wesley R. Bricker, Chief Accountant

Summary - SEC Chief Accountant Wesley Bricker recently spoke about the importance of financial reporting as a cornerstone on which the process of capital allocation is built. Bricker indicated that good "accounting and auditing may not readily grab the general public’s attention, but they are essential to our livelihoods." Highlights of Bricker's remarks included:

  • If the starting point of the financial reporting process does not begin with management using high-quality financial information for its preparation of financial statements, then what could result are increased risks and costs in each subsequent phase of financial reporting.
  • The strength of financial reporting, and of our capital markets, depends on thorough and objective audits performed by auditors who are ethical, independent, skeptical, and who apply the diligence necessary to meet professional and regulatory standards.
  • Capital markets present both opportunities and challenges to the securities regulators in executing their mandates to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation.
  • The quality and quantity of the available financial statement information in an economy influence the efficiency of resource allocation and the cost of capital.
  • I make the distinction between general and special purpose objectives to emphasize the value of keeping and maintaining general purpose financial reporting free from other objectives. Standard-setters for general purpose financial reporting are concerned with, among other things, the qualities of information that relate to broad classes of investment and credit decision makers rather than to particular ones.
  • Information provided by general purpose financial reporting should be comprehensible to those with a reasonable understanding of business and economic activities who are willing to study the information with reasonable diligence.
  • One crucial preventive measure is the development of high-quality audit standards, which aid, but can never wholly replace, the role of decision making and judgment by auditors.
  • High-quality audit standards make audits—and the work of audit committees and others that oversee the audits of companies on behalf of investors—considerably more effective.And so, we all have an interest in the accountability and inclusiveness of the international audit-related standard-setters.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Progress is Being Made: Continued Focus on Addressing Implementation Matters by Sagar Teotia, Deputy Chief Accountant

Summary - SEC Deputy Chief Accountant Sagar Teotia recently discussed the financial reporting implications of the Tax Cuts and Jobs Act (the Act) and also provided an update on the implementation efforts associated with new GAAP standards.

Tax Cuts and Jobs Act

Teotia discussed the SEC’s issuance of Staff Accounting Bulletin (SAB) No. 118 as a result of the Act signed into law at the end of 2017. Observations Teotia shared on SAB 118 included:

  • SAB 118 does not provide an option to defer application of the income tax accounting guidance. While some stakeholders requested a deferral option, the SEC staff opted to not follow that approach. Instead, the SEC staff believes that the approach highlighted in SAB 118 provides investors with better and more timely information and addresses the financial reporting concerns raised by various stakeholders leading up to the enactment of the Act.
  • SAB 118 categorizes the accounting for the income tax effects of the Act into one of three “buckets:”
  • Bucket 1 represents the income tax accounting effects of the Act that an entity is able to complete. Some entities, however, may not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act.
  • Bucket 2 represents the specific income tax accounting effects of the Act that are not yet complete, but for which an entity can determine a reasonable estimate. The reasonable estimate should be reported as a provisional amount in the first reporting period a reasonable estimate can be determined. Additionally, there may be certain situations in which a reasonable estimate cannot be determined.
  • Bucket 3 represents those specific income tax effects for which a reasonable estimate cannot be determined. In such cases there should be no provisional amount included in the financial statements for those specific income tax effects for which a reasonable estimate cannot be determined.
  • Depending on their facts and circumstances and for specific income tax effects, some entities may complete the accounting in the early to middle parts of the measurement period, while other entities may not be able to complete the accounting for certain income tax effects until the end of the measurement period. There are no bright lines as to when the accounting for a specific income tax item should be completed during the measurement period; when the accounting is completed will clearly vary depending on an entity’s facts and circumstances. The key is to simply be progressing in good faith when looking to the staff’s guidance in SAB 118.
  • Disclosure guidance in SAB 118 should not be overlooked. These disclosures provide important information to financial statement users about the financial reporting impact of the Act where the accounting is incomplete and are a meaningful component of SAB 118.

Implementation Efforts on New GAAP Standards

Teotia also provided an update on implementation efforts associated with new accounting standards on revenue recognition, leases, and credit losses. Highlights of Teotia’s remarks included:

  • While consultations received by the SEC staff to date on the new revenue recognition standard have related to a number of topics, several of which have been communicated in previous speeches, the most frequently discussed issues related to the identification of performance obligations and the application of the principal versus agent guidance.
  • For those companies that are still working on adoption of the new revenue recognition standard, the SEC staff encourages you to keep the momentum going.
  • The new leases standard has been a significant focus of the SEC staff, and its focus is naturally increasing as the effective date nears.
  • With respect to guidance on lease implementation, Teotia emphasized what the SEC staff has previously stated: for those underway, keep going, and for anyone else, get going. Implementation will require (among other steps): understanding the accounting and disclosure requirements of the new standard; identifying relevant arrangements and leases within those arrangements; determining appropriate accounting policies, including applicable transition elections; applying the new standard to arrangements within the scope of the standard; preparing transition and ongoing disclosures; and establishing adequate and appropriate processes and controls to support implementation and application of the standard, including the preparation of required disclosures.
  • It is important for registrants to ensure their implementation plans include sufficient time to identify arrangements that include leases subject to Topic 842. Teotia emphasized this point because it may require time to complete. Registrants should carefully evaluate all of their arrangements and transactions to evaluate the appropriate accounting literature.
  • Teotia believes that registrants, auditors, and audit committees all have key roles to play. Registrants and their auditors should be actively working to identify and resolve any application and transition issues related to the new standard. Registrants, with the oversight of their audit committees, should ensure any issues related to adopting and applying the new standard are identified and resolved.
  • Regarding the new credit losses standard, the dialogue the SEC staff is having has moved towards a focus on implementation and the staff has noted meaningful progress to date being made by the institutions that have engaged with them. Teotia indicated that registrants and their auditors are actively working to identify and resolve accounting and implementation issues related to this new standard.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Keeping Shareholders on the Beat: A Call for a Considered Conversation about Mandatory Arbitration by Commissioner Robert J. Jackson Jr.

Summary - SEC Commissioner Robert J. Jackson, Jr. recently spoke about recent rumors that the securities industry is eager to include mandatory arbitration of shareholder disputes into an upcoming IPO. Jackson indicated that the "idea is that our Division of Corporation Finance will be forced to approve the IPO, stripping shareholders of their right to their day in court-and radically altering the balance between shareholders and corporate insiders." Topics discussed by Jackson included:

  • How the SEC polices corporate wrongdoing;
  • Impact of budgetary constraints on SEC enforcement; and
  • A potential path forward.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Statement on Potentially Unlawful Online Platforms for Trading Digital Assets by Divisions of Enforcement and Trading and Markets

Summary - The SEC's Divisions of Enforcement and Trading and Markets issued a statement warning of potentially unlawful online platforms for trading digital assets. The SEC indicated that online trading platforms "have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings ("ICOs"). The platforms often claim to give investors the ability to quickly buy and sell digital assets."
 
The statement provides a number of considerations for investors using online trading platforms. The statement urges investors to consider asking a number of questions before they decide to trade digital assets on an online trading platform, including:
  • Do you trade securities on this platform? If so, is the platform registered as a national securities exchange?
  • Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC?
  • Is there information in FINRA's BrokerCheck ® about any individuals or firms operating the platform?
  • How does the platform select digital assets for trading?
  • Who can trade on the platform?
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Opening Remarks at the “SEC Speaks” Conference by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently spoke about strengths of the SEC. Clayton indicated that the SEC has a "foundation of exceptional design and resilience, with the '33 and '34 Acts being the bedrock components. But, in comparison to companies that operate in the financial markets, the asset side of our balance sheet is far from extensive..." Clayton noted that for the SEC to maintain its goodwill, it must be nimble and forward-looking.

For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders by Rick Fleming, Investor Advocate

Summary - SEC Investor Advocate Rick Fleming recently discussed views on the issue of mandatory arbitration and, more specifically, on efforts to force public company shareholders to forego class action lawsuits and seek recovery individually through arbitration. Fleming indicated that this has been "a matter of concern to investors recently, after commentators have suggested that U.S. IPO issuers should consider including arbitration provisions in their articles or bylaws."
 
Fleming indicated that the idea of forced arbitration has been promoted as a way to reduce costs of securities litigation for public companies and thereby remove a perceived disincentive for companies to be public. Reportedly, it is too easy for plaintiffs' firms to bring dubious cases and win settlements, and some have argued that class action lawsuits, even meritorious ones, fail to compensate harmed investors in any meaningful way. Fleming cautioned that there "may be some validity to these concerns. But stripping away the right of shareholders to bring a class action lawsuit seems to me draconian and, with respect to promoting capital formation, counterproductive."
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Remarks at SEC Speaks: Increasing Product Complexity - What’s at Stake? by Commissioner Kara M. Stein

Summary - SEC Commissioner Kara M. Stein recently spoke about concerns about the increasing complexity in investment products being offered. Stein indicated that all investments "have at least some risk. And I recognize that there is a sliding scale of complexity. But what I would like to do is ask whether certain products are appropriate for all investors?" Stein went on to discuss concerns about complex products currently available to retail investors, including:
  • Derivatives;
  • Leveraged and passive investment strategies;
  • Volatility indexes; and
  • Structured products.
Stein cautioned that what concerns her is "the disconnect between what investors actually understand and what they really need to understand in order to have a fighting chance at using these products the way they are designed to be used." Stein indicated that the SEC, FINRA, and the product exchanges need the ability to understand the full impact of these complex products on investors and our markets. Stein also called for more accountability from certain "gatekeepers" to remember that there are real people behind each account number, who are "saving for college, retirement, or any number of financial goals. Gatekeepers should be part of the solution, not part of the problem."
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Opening Remarks at the Securities Regulation Institute by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently criticized certain legal advice given on initial coin offerings (ICOs) and warned of the emergence of overnight blockchain companies. Clayton also provided an updated on rulemaking under the Dodd-Frank Act.

Legal Advice and ICOs

Clayton indicated that “there are ICOs where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an "ICO," which sounds pretty close to an "IPO."  On the other hand, those lawyers claim the products are not securities, and the promoters proceed without compliance with the securities laws, which deprives investors of the substantive and procedural investor protection requirements of our securities laws.”

Clayton also cautioned that he has seen instances where lawyers “appear to have taken a step back from the key issues – including whether the "coin" is a security and whether the offering qualifies for an exemption from registration – even in circumstances where registration would likely be warranted. These lawyers appear to provide the "it depends" equivocal advice, rather than counseling their clients that the product they are promoting likely is a security. Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk.”

Clayton indicated that he has instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.

While the SEC recognizes that in some ICOs there is no market professional involved, the SEC is undertaking significant efforts to educate the public that unregistered securities investments offered by unregistered promoters, with no securities lawyers or accountants on the scene, are, in a word, dangerous.

Overnight Blockchain Companies

Clayton raised concerns about public companies that shift their business models seemingly overnight to capitalize on the perceived promise of blockchain technology. Clayton indicated that the “SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”

Dodd-Frank Act Rulemaking

Clayton provided an update to outstanding rulemaking under the Dodd-Frank Act. Clayton noted “how quickly we can complete the remaining Dodd-Frank rules is a multi-variable function and two of the key variables – there are many – are mission-critical demands and the complexity of the mandates themselves.”

Regarding the SEC’s work on executive compensation rules for both public companies and SEC-regulated entities, Clayton indicated that a serial approach is likely to be most efficient and best serve the SEC's mission. Clayton praised the recently issued interpretive guidance to help companies comply with the new pay ratio rules. Clayton noted that this guidance was “true to the statutory mandate, practical, and intended to help companies reduce compliance costs. With those same themes in mind, I am discussing with my fellow Commissioners and the staff how best to address the remaining mandatory executive compensation rules.”

Regarding the SEC’s rulemaking on specialized disclosure rules, such as resource extraction disclosure, Clayton indicated that in the case of resource extraction, the task is difficult and it is clear some stand poised to challenge the SEC’s work, whatever its outcome. However, Clayton cautioned that this does not relieve the SEC of “its responsibility. With that perspective, I have asked the staff to craft rules for consideration by the Commission that meet the objectives of Congress, take into account this array of procedural and substantive constraints, and bring finality to these matters.”

For more information, click here.

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Opening Remarks to SEC-NYU Dialogue on Securities Markets #4: Shareholder Engagement by Chairman Jay Clayton

Summary -SEC Chairman Jay Clayton recently spoke about the current state of shareholder engagement, including the roles of institutional and activist investors and how those roles have changed over time. Clayton noted that regulators have mandated or suggested rule sets, including disclosure requirements and incentive driving requirements and prohibitions, “that have reduced the opportunities for misalignment between shareholders and managers. Based on my observations and, more significantly, my interactions with various market participants, I believe it is clear that governance has improved as a result.”

Clayton discussed issues market regulators need to keep in mind to ensure their efforts keep up with ever-changing markets, including:

  • Various layers between the ultimate owners of capital and corporate management;
  • Principal-agent and shareholder alignment issues; and
  • Corporate governance.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Statement on Cryptocurrencies and Initial Coin Offerings by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton issued a Statement on Cryptocurrencies and Initial Coin Offerings, urging investors to beware when investing in cryptocurrencies and initial coin offerings (ICOs). Clayton warned that a "number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation."
 
Clayton's statement provides that:
  • To date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (e.g., ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.
  • If you choose to invest in these products, ask questions and demand clear answers. The SEC has issued investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-related investments, including with respect to the marketing of certain offerings and investments by celebrities and others.
  • As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
  • Cryptocurrency and ICO markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.
Clayton also urged caution for market professionals dealing in cryptocurrencies and ICOs. Clayton cautioned market participants "against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions." Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of "scalping," "pump and dump" and other manipulations and frauds. Clayton noted specifically on cryptocurrencies:
  • While there are cryptocurrencies that do not appear to be securities, simply calling something a "currency" or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either: (a) be able to demonstrate that the currency or product is not a security; or (b) comply with applicable registration and other requirements under our securities laws.
  • Brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Accounting Bulletin No. 117

Summary - The SEC staff has issued Staff Accounting Bulletin (SAB) No. 117 which communicates views on when a registrant adopts FASB Accounting Standards Codification™ Topic 321, Investments-Equity Securities. SAB 117 provides that SAB Topic 5.M is no longer applicable and that, subsequent to a registrant adopting ASC Topic 321, investments in equity securities that would have previously qualified for presenting changes in fair value within other comprehensive income will be measured at fair value, with changes in fair value presented immediately in net income.

For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market by Chairman Jay Clayton

Summary SEC Chairman Jay Clayton recently discussed the fixed income markets. Specifically, Clayton's remarks focused on the following topics:
  • Regulatory coordination and its importance to the treasury market;
  • Treasury market data; and
  • Views regarding the SEC's approach to the future regulation of certain other aspects of the fixed income markets.
Regulatory Coordination
One of the principles that should guide the SEC's work that has previously been identified by Clayton is efficient and effective regulatory coordination. The SEC shares the financial services space with many other regulators and governmental entities that oversee related and overlapping industries and market participants, including those in the fixed income markets. Clayton notes that coordination "among those bodies-locally, nationally and internationally-is essential to a well-functioning regulatory environment and, in turn, well-functioning markets. Said another way, inconsistent, duplicative, fragmented, and unilateral regulation, is at best inefficient and, all too often, provides the seeds for market failures and improper conduct. These inefficiencies and failures have lasting effects on individuals, firms and our economy more generally."
 
Clayton noted that not only is coordination between and among regulators and government authorities critical, but coordination and open communication between regulators and the various participants in the markets that they oversee is also vitally important. The SEC strives to continuously invest in its knowledge of the markets, firms, and individuals it regulates, as well as those it strives to protect. Clayton noted that he has "instructed our staff to endeavor to engage with, listen to, and learn from investors and industry participants."
 
Treasury Market Data
The SEC, as well as the other authorities responsible for this market and other markets, needs a clear and precise understanding of the trends, dynamics and risks in the Treasury market. Clayton cited FINRA's rule change that requires FINRA member broker-dealers to report transactions in Treasury securities to FINRA's TRACE system has helped get better treasury market data. However, gaps in data remain as noted in the Treasury Department's Capital Markets Report, which also includes a number of important recommendations to improve FINRA's TRACE system.
 
Fixed Income Regulation Efforts
Clayton highlighted the SEC's creation of the new Fixed Income Market Structure Advisory Committee (the Committee). The Committee, whose initial focus will be on the corporate and municipal bond markets, will advise the SEC on the efficiency and resiliency of these markets and help the SEC identify opportunities for regulatory improvements. Clayton noted that he has "long believed that there should be additional regulatory focus on these important and growing markets, notwithstanding several meaningful and impactful regulatory initiatives in recent years. Indeed, the corporate and municipal debt markets are particularly significant to retail investors, as well as American companies and our national infrastructure."
 
Topics Clayton believes the Committee may address in future include:
  • Bond market liquidity;
  • Broad implications of the growth and proliferation of bond funds and exchange traded products;
  • Whether the SEC should undertake efforts with respect to pre-trade transparency in these markets; and
  • How technologies are changing the markets.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Reflections on the Past, Present, and Future of the SEC's Enforcement of the Foreign Corrupt Practices Act Steven R. Peikin, Co-Director, Enforcement Division

Steven R. Peikin, Co-Director of the SEC's Enforcement Division, recently reflected on the SEC's enforcement of the Foreign Corrupt Practices Act (FCPA). Peikin noted that "collaboration and coordination is integral to the Division of Enforcement's efforts to combat bribery through the enforcement of the FCPA, and the OECD has played a pivotal role in fostering global efforts against bribery and corruption."

Past Enforcement of FCPA
Peikin noted that over the last 40 years, enforcement of the FCPA has been a fundamental part of the SEC's enforcement mission. Recognizing the increasingly specialized nature of FCPA practice, in 2010, the Enforcement Division formed a specialized unit dedicated to investigating potential violations of the FCPA. The SEC's focus on FCPA enforcement has yielded significant results. Since the creation of the FCPA Unit in 2010, the SEC has brought 106 FCPA-related actions against 101 entities and 38 individuals.
 
Future of FCPA Enforcement
As SEC Chairman Jay Clayton noted during his confirmation hearing, bribery and corruption have no place in society. Charles Cain was just last week appointed as Chief of the FCPA Unit. Peikin noted that "Cain has devoted much of his career to FCPA enforcement matters, has handled some of the Commission's most significant cases and, prior to his appointment, served as Deputy Chief and Acting Chief of the Unit."
 
In his view, Peikin believes that U.S. authorities cannot go it alone in fighting corruption given the increasingly international enforcement environment. As global markets become more interconnected and complex, no one country or agency can effectively fight bribery and corruption by itself. Anti-corruption enforcement is a team effort. Peikin observes that "the level of cooperation and coordination among regulators and law enforcement worldwide is on a sharply upward trajectory, particularly in matters involving corruption. In fact, in the past fiscal year alone, the SEC has publicly acknowledged assistance from 19 different jurisdictions in FCPA matters."
 
Companies cannot engage in bribery without the actions of culpable individuals. Peikin noted that the SEC's Enforcement Division is broadly committed to holding individuals accountable when the facts and the law support doing so.

For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Statement on Status of the Consolidated Audit Trail by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton issued a statement rejecting a request for delay in implementation requirements of the Consolidated Audit Trail (CAT). CAT would consolidate compiling detailed information of orders and trades for U.S. equity and options markets to better protect investors. CAT was adopted under Rule 613 of Regulation NMS in the wake of the 2010 "Flash Crash."
 
Request for Implementation Delay
A number of U.S. equity exchanges requested relief in the form of a delay in the timeline of certain milestones to implementing CAT. Clayton refused to provide such relief that he is "not in a position to support the issuance of the requested relief on the terms currently proposed.  That said, I will continue to engage with the SROs on these issues, and I have instructed the SEC staff to make themselves available to the SROs as necessary or appropriate.  I urge the SROs to continue their efforts to work cooperatively with each other and to meet their responsibilities as promptly as practicable."

For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant

Summary - Wesley R. Bricker, Chief Accountant of the SEC, discussed effective financial reporting in a period of change. Bricker noted that without "reliable financial information, supported by high quality accounting and auditing, investors cannot properly judge the opportunities and risks of investment choices to allocate capital to public companies, a key part of the American economy. Accounting and auditing may not readily grab the general public's attention, but they are nonetheless important to the livelihoods of all Americans." Bricker discussed a number of important financial reporting changes, including new accounting standards, the new auditor's reporting model, and blockchain technology.
 
Revenue Recognition Standard Implementation
Bricker commended the many companies that have expended great effort to make significant progress in implementing the new revenue standard. However he also warned that some public companies "may need to accelerate the pace of their work to complete their implementation timely. Where there is a risk of material misstatement, companies need to have internal controls that address the judgments and estimates required of management to implement and, subsequently, apply the new standard." The effectiveness of internal controls over the transition adjustment and ongoing application of the new standard should be supported by appropriate documentation of significant judgments and decisions.
 
Bricker also emphasized the important role audit committees should be playing in the implementation efforts associated with the new revenue recognition standard. Audit committees should anticipate receiving, as part of required communications, information from the auditor about any concerns with the anticipated implementation. Bricker noted that it "can be valuable for audit committees to listen for any differences in assessment of implementation status, milestones, or issue resolution between management's and the auditor's presentations. Increasingly through the third and fourth quarter reporting, I anticipate companies to be in a position to disclose in their SAB 74 disclosures the anticipated impact, at least qualitatively and directionally, of adoption of the revenue standard." Bricker and other members of the SEC staff have previously discussed SAB 74 disclosures related to the new accounting standards on revenue recognition, leases, and credit losses.
 
Leases Standard Implementation
Bricker expects the implementation of the new leases standard to be a significant effort for most companies. Bricker cited several expected steps required to implement the leases standard, including (but not limited to):
  • Identifying relevant legal contracts;
  • Evaluating whether an arrangement is or contains a lease; and
  • Applying the new leases standard to arrangements within its scope.
Like the revenue standard, the leases standard will require reasonable judgment in certain areas, and developing well-reasoned judgments frequently requires time. Companies should identify the accounting questions relative to their arrangements and begin working through those questions in a timely manner.
 
While not required, Bricker noted that the OCA staff has observed a best practice is "for companies to commence efforts to implement the new leases standard concurrently (or partially concurrently) with the new revenue standard." Companies that wait to begin addressing the new leases standard until after they have implemented the new revenue standard may find that they have limited their time for implementation. Insufficient time could impact, among other items, the ability of a company to make reasonable judgments and to complete its accounting analysis.

Auditor's Reporting Model
Bricker discussed the SEC's recent approval of a PCAOB standard that will provide significant changes to the independent auditor's report. Under the standard, beginning this year-end, the auditor's report will contain clarifications regarding independence, auditor responsibilities, and communication of an auditor's continuous years of service to the company. The auditor's report will continue to provide a pass or fail opinion. The standard has phased effective dates with audit reports that communicate critical audit matters required for large accelerated filers 18 months before being required for all others. Beginning with audits of fiscal years ending on or after June 30, 2019, reports on large accelerated filers will include communication about critical audit matters. (Editor's Note: Communication of critical audit matters will apply to audits of all other public companies for fiscal years ending on or after December 15, 2020. All other changes to the auditor's reports not related to critical audit matters are effective for fiscal years ending on or after December 15, 2017).
 
Bricker cautioned that he supports the new auditor's reporting model, but "to achieve its full potential, the requirements must be effectively implemented." As part of getting started, Bricker encourages auditors to:
  • Update their methodologies;
  • Provide necessary training; and
  • At the engagement team level, use the transition period to engage in dialogue with audit committees so that audit committees have time to understand the types of matters that may be communicated as critical audit matters in the audit reports.
Bricker expects the PCAOB will conduct a timely and effective post-implementation review on the requirements of the new standard. Bricker noted that during the phased effective dates "the SEC staff will review carefully the results of the post-implementation procedures and work with the PCAOB as it considers whether additional changes to the requirements are needed, including to the implementation date for non-large accelerated filers."

Blockchain Technology
The OCA is focused on the use of blockchain technology by those who may be utilizing capital from investors, in particular our Main Street investors, to develop possible applications in light of the fact that financial information is important to investor decision making. As a result, Bricker noted that OCA is investing time to understand blockchain technology applications such as cryptocurrencies, coins, tokens and so forth as they are offered, bought, held, sold, and traded. Bricker noted that the SEC's existing accounting and auditing requirements, books and records requirements, auditor independence rules, and the federal securities laws provide a basis for dealing with blockchain technology applications. Bricker provided that these existing SEC requirements "collectively form a framework for us, and they should as well for everyone, because these requirements apply to all matters within the purview of the SEC, even if they were developed prior to the emergence of the types of facts and circumstances, including blockchain technology applications."

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