SEC Staff Views & Speeches

Summary - SEC Chief Accountant Paul Munter recently discussed potential pitfalls related to crypto assurance work. Munter indicates that as “accounting firms increasingly engage in this sort of non-audit work, their clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false. Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.”

Key specific topics discussed by Munter include:

Accounting firm’s potential liability for antifraud provisions;
Auditor independence; and
Potential liability pursuant to Rule 102(e) of the SEC’s rules of practice.

For more information, click here.

“Isaac Newton to AI” Remarks before the National Press Club, Gary Gensler, Chairman - June, 2023

Summary - SEC Chair Gary Gensler recently discussed the growing use of Artificial Intelligence (AI) in many aspects of life, including finance. Gensler indicates that a lot “of the recent buzz has been about such generative AI models, particularly large language models. AI, though, is much broader. I believe it’s the most transformative technology of our time, on par with the internet and mass production of automobiles.”

Gensler provides that in finance, AI is already being used for call centers, account openings, compliance programs, trading algorithms, sentiment analysis, and more. Gensler discussed the many opportunities and challenges AI presents in finance and the broader world.

Specific opportunities and challenges discussed by Gensler included:

Privacy and intellectual property;
Financial stability;
System-wide risk; and
Explaining AI results, bias, and/or robustness.

For more information, click here.

July 18, 2023: Sample Letter to Companies Regarding China-Specific Disclosures

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding China-Specific Disclosures. This sample letter expands on Corp Fin’s previous guidance issued regarding China-specific disclosures in SEC filings. Corp Fin indicates that it “continues to believe that companies should provide more prominent, specific, and tailored disclosures about China-specific matters so that investors have the material information they need to make informed investment and voting decisions.”

The sample letter highlights disclosure considerations for companies in several areas, including:

Commission-identified issuers (as identified by the SEC under the Holding Foreign Companies Accountable Act);
Risk of intervention or control by the PRC Government; and
The Uyghur Forced Labor Prevention Act.

For more information, click here.

Remarks at Financial Times Cyber Resilience Summit by Gurbir S. Grewal, Director, Division of Enforcement - June 2023

Summary - Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, recently discussed cybersecurity and its role in our public securities markets. Grewal indicates that cybersecurity is foundational to maintaining the integrity of our public securities markets and the economy as a whole.

Grewal notes that the SEC “is doing its part here to address these risks. In addition to enforcing existing rules and requirements, as everyone in this room well knows, the Commission has also proposed and is considering rules enhancing cybersecurity-related policies and procedures at broker-dealers, exchanges, and other market participants.”

The SEC’s Division of Enforcement follows five principles to guide its work aimed at ensuring companies take their cybersecurity and disclosure obligations seriously. These principles are:

When there are cyber-attacks on publicly traded companies and other market participants, we consider the investing public to also be potential victims of those incidents.

Companies need to have real policies that work in the real world, and then they need to actually implement them; having generic “check the box” cybersecurity policies simply doesn’t cut it.

Companies need to regularly review and update all relevant cybersecurity policies to keep up with constantly evolving threats. What worked 12 months ago probably isn’t going to work today, or at a minimum may be less effective.

When a cyber incident does happen, the right information must be reported up the chain to those making disclosure decisions. If they don’t get the right information, it doesn’t matter how robust your disclosure policies are.

The SEC has zero tolerance for gamesmanship around the disclosure decision. Grewal urges companies that have a material event, or think they might, to comply with their disclosure obligations and come and talk to the SEC sooner rather than later, not in six months after they finish their internal investigation.

For more information, click here.

Meeting Investor Demand for High Quality ESG Data, Jaime Lizárraga, Commissioner - October, 2022

Summary - SEC Commissioner Jaime Lizárraga recently discussed the importance of high quality ESG data to investors and components of the SEC’s recent proposal on ESG data. Lizárraga discussed the SEC’s proposals on ESG reporting, indicating that “the SEC’s disclosure framework is most effective when investors benefit from objective, quantitative metrics that provide the highest degree of comparability. I believe the proposed rules are a significant step forward in getting investors this information. I look forward to working to ensure that the final rules are as robust as possible.”

Lizárraga indicates that each of the SEC’s proposals on ESG data would each help facilitate comparable disclosures and focus on ensuring statements made to investors are not false or misleading:

Enhanced climate risk disclosures by issuers.
Enhanced ESG disclosures by registered funds and investment advisers.
Modernized rules governing ESG-related fund names.

For more information, click here.

The Auditor’s Responsibility for Fraud Detection, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Acting Chief Accountant, Paul Munter, recently shared his perspectives on the auditor’s responsibility for fraud detection. Munter indicates that “Auditors are gatekeepers and therefore the importance of their responsibilities with respect to the identification of risks of material misstatement due to fraud (“fraud risks”) and the detection of material misstatements in the financial statements due to fraud should not be underestimated. This is particularly true because any changes to the macroeconomic and geopolitical environment in which companies operate may result in new pressures, opportunities, or rationalizations for fraud.”

Munter’s comments focus on the following topics:

The auditor’s responsibilities with respect to fraud, including observations of some auditor shortcomings;
How the auditor’s responsibilities are incorporated currently in the PCAOB standards, including the PCAOB’s quality control standards; and
Reminders on good practices.

Key observations by Munter and the Office of the Chief Accountant (OCA) includes:

An auditor should avoid exhibiting bias, which may result from focusing the risk assessment and the related audit response on risks of error and overlooking or failing to identify the fraud risks. It is critical that auditors evaluate whether information gathered throughout the audit indicates that one or more fraud risk factors are present and how fraud could be perpetrated or concealed by management.

An auditor’s consideration of fraud is incorporated into many PCAOB auditing standards. OCA emphasizes that the auditor’s risk assessment and use of the fraud lens is an ongoing and iterative process that continues until the issuance of the audit report.
A strong system of audit firm quality controls enables individual auditors to successfully perform their responsibilities with respect to fraud in the audit. Auditors may face pressures from various sources, both internal and external, during the audit. These pressures can distract an auditor from appropriately identifying and responding to fraud risks thereby reducing the likelihood that the auditor will detect material misstatements in the financial statements resulting from fraud.

Auditors should be skeptical of evidence provided by management when the timing or manner in which such evidence is produced is questionable. This may include invoices for large amounts with vague descriptions, invoices with related parties with descriptions that are outside of the normal course of business, or “new” evidence provided by management in the late stages of the audit to address a potentially difficult or contentious audit matter. Auditors should avoid any assumptions of honesty, be mindful of potential unconscious biases, and apply the appropriate level of professional skepticism.

It is critical for auditors to be alert to financial reporting areas that may be more frequently related to fraudulent schemes, such as improper revenue recognition and the intentional misstatement of accounting estimates.

Auditors should avoid using the examples of fraud risk considerations and related responses included within the auditing standards as an exhaustive checklist. Audit responses should be tailored to the identified fraud risk and dynamic to changing business environments if auditors are to fulfill their professional responsibilities to consider fraud and to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error.

Access to granular data and information can increase transparency into underlying transactions, which through the use of technology may provide useful insights to assist with identifying unusual or unexpected relationships or helping auditors in performing more robust planning analytics. That said, it is important to remember that the use of technology is most effective when combined with sound professional judgment and other audit procedures that do not lend themselves to the use of technology.

For more information, click here.

Auditor Independence and Ethical Responsibilities: Critical Points to Consider When Contemplating an Audit Firm Restructuring, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - The SEC’s Acting Chief Accountant, Paul Munter, recently discussed auditor independence and ethical responsibility considerations in the context of audit firm restructuring transactions. Munter indicates that the SEC’s Office of the Chief Accountant (OCA) has observed “audit firms exploring the sale of a portion of their business to an external party while retaining an equity interest or other form of continuing involvement in that business, or divesting all or portions of the accounting firm’s consulting practice to a third-party entity. While such contemplated sale and divestiture deals are not new, in the view of OCA staff, complex transactions with investors that are not traditional accounting firms, and have not previously been subject to the same independence and ethical responsibilities, elevate the risk to an auditor’s independence with respect to its audit clients. In these complex practice structures and divestitures, it is paramount that the accounting firm fully understands its responsibility for maintaining auditor independence and it discloses such requirements to the non-accounting firm investors involved in the transaction so that the accounting firm can obtain the information necessary to fulfill its responsibilities.”

OCA has observed that recent contemplated transactions by accounting firms may involve private equity or other investment structures purchasing ownership interests in the accounting firm. Munter cautions that, ‘When an accounting firm is considering obtaining an investment from a private equity or other investment structure, each entity within such structure would need to be carefully evaluated to determine if the entity is an ‘associated entity’ and is therefore part of the accounting firm for purposes of assessing potential impacts on, among other things, compliance with the Commission’s auditor independence requirements.”

Munter discussed the following broad topics in relation to auditor independence considerations related to audit firm restructuring transactions:

OCA staff observations related to these transactions;
Additional challenges from private equity investment; and
Divestiture of a portion of a business.

Munter reminds accountants of the requirement to be independent in both fact and appearance, and when auditor independence is a close-to-the-line call, accounting firms need to have a strong culture and tone at the top that prioritizes independence and ethical responsibilities above all else.

For more information, click here.

The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - The SEC’s Acting Chief Accountant, Paul Munter, recently discussed the importance of the general standard of auditor independence and fostering an ethical culture. Munter indicates that high-quality audits are “critical to the process of providing decision-useful financial information for the benefit of investors, and auditors serve an important gatekeeping and investor protection function by helping to ensure that issues are promptly identified and addressed. The Commission has long-recognized that audits by professional, objective, and skilled accountants that are independent of their audit clients contribute to both investor protection and investor confidence in the financial statements.”

Specific topics discussed by Munter included:

The auditor independence framework of rule 2-01(b) of Regulation S-X;
The office of the chief accountant’s approach to auditor independence consultations;
Certain recurring issues in recent oca staff auditor independence consultations; and
The paramount importance that accounting firms foster an ethical culture with respect to auditor independence and fulfill their professional responsibilities.

For more information, click here.

“The Name’s Bond:" Remarks at City Week, Gary Gensler, Chairman - April, 2022

Summary - SEC Chair Gary Gensler recently discussed his views on the oversight of U.S. fixed income markets. Gensler indicated that given the “sheer size and importance of the fixed income markets, I think we should focus on how we can make improvements to them.” Topics discussed by Gensler included:

Transparency in the markets;
Trading platforms;
Enhancing resiliency of the fixed income markets.

For more information, click here.

Resolving the Lack of Audit Transparency in China and Hong Kong: Remarks at the International Council of Securities Associations (ICSA) Annual General Meeting by YJ Fischer, Director, Office of International Affairs

Summary - YJ Fischer, SEC Director of the Office of International Affairs, recently discussed recent regulatory developments related to the lack of US inspections of audits and investigations in China and Hong Kong, and the implications for continued trading of China-based issuers on US exchanges. Fischer indicated that for “more than a decade, local authorities in those jurisdictions have hampered the Public Company Accounting Oversight Board’s (“PCAOB”) ability to obtain audit work papers and interview audit engagement personnel as statutorily mandated. This situation is untenable because, among other things, it exposes US investors to significant risks.”

Fischer’s comments focused on and emphasized the following points:

PCAOB-registered public accounting firms must provide the PCAOB with access to their audit work papers, and, any claim that audit work papers cannot be produced because they contain national security materials is questionable at best;
Although there have been ongoing and productive discussions between US and Chinese authorities regarding audit inspections and investigations, significant issues remain and time is quickly running out
Even if US and Chinese authorities reach an agreement in the near future to commence PCAOB audit inspections and investigations in China and Hong Kong—and I want to emphasize this point—such an agreement will only be the start towards satisfying the PCAOB’s statutory mandate; and
Should the issuers or the relevant Chinese authorities wish, they can effectuate the voluntary delisting of China-based issuers that they deem “too sensitive to comply” with PCAOB requirements, but allow other companies and audit firms to comply fully with the PCAOB inspection and investigative processes, thereby allowing the remainder of China-based issuers to avoid potential trading prohibitions in the US.

For more information, click here.

Remarks at Securities Enforcement Forum West 2022 by Gurbir S. Grewal, Director, Division of Enforcement

Summary - Gurbir S. Grewal, Director of SEC Enforcement, recently discussed the SEC Division of Enforcement’s role in increasing public confidence in our markets and in government. Grewal indicated that one important factor in building this confidence is the SEC’s investigation process, which he believes should move quickly and efficiently.

Grewal provided his thoughts on aspects of the SEC’s investigation process, including views on:

Document productions;
Defense counsel tactics to delay SEC investigations; and
Witness interrogations.

For more information, click here.

May 03, 2022: Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues. The letter indicates that Corp Fin believes that companies should provide detailed disclosure, to the extent material or otherwise required, regarding:

Direct or indirect exposure to Russia, Belarus, or Ukraine through their operations, employee base, investments in Russia, Belarus, or Ukraine, securities traded in Russia, sanctions against Russian or Belarusian individuals or entities, or legal or regulatory uncertainty associated with operating in or exiting Russia or Belarus;
Direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia;
Actual or potential disruptions in the company’s supply chain; or
Business relationships, connections to, or assets in, Russia, Belarus, or Ukraine.

The financial statements may also need to reflect and disclose:

The impairment of assets;
Changes in inventory valuation;
Deferred tax asset valuation allowance;
Disposal or exiting of a business;
De-consolidation;
Changes in exchange rates; and
Changes in contracts with customers or the ability to collect contract considerations.

In addition, Corp Fin indicates that since Russia’s invasion of Ukraine, many companies have experienced heightened cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities regardless of whether they have operations in Russia, Belarus, or Ukraine that warrant disclosure.

Corp Fin also indicates that companies should also “consider how these matters affect management’s evaluation of disclosure controls and procedures, management’s assessment of the effectiveness of internal control over financial reporting, and the role of the board of directors in risk oversight of any action or inaction related to Russia’s invasion of Ukraine, including consideration of whether to continue or to halt operations or investments in Russia and/or Belarus.”

For more information, click here.

Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter recently discussed assessing materiality when considering errors in financial statements. Munter indicated that one SEC staff has observed an increased need for objectivity is “in the assessment of qualitative factors. The interpretive guidance on materiality in SAB No. 99 speaks to circumstances where a quantitatively small error could, nevertheless, be material because of qualitative factors. However, we are often involved in discussions where the reverse is argued—that is, a quantitatively significant error is nevertheless immaterial because of qualitative considerations. We believe, however, that as the quantitative magnitude of the error increases, it becomes increasingly difficult for qualitative factors to overcome the quantitative significance of the error.”

Topics discussed by Munter included:

Concept of Materiality and the Correction of Material Errors;
Objective Assessment of Materiality; and
Observations from Recent Interactions with Registrants and Auditors on Materiality.

For more information, click here.

Business Combinations –SEC Staff Updates Compliance and Disclosure Interpretations

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

Exchange Act Form 8-K (Question 102.04-102.05);
Proxy Rules and Schedules 14A/14C (101.02, 132.01-132.02); and
Tender Offers and Schedules (166.01).

Corp Fin has updated these C&DIs to provide additional guidance on disclosures associated with entering into a business combination agreement. This updated guidance includes discussion of when a company must disclose material terms and conditions when entering into a business combination agreement that is reportable under Item 1.01 of Form 8-K. The updated guidance also discusses certain proxy disclosure rules related to whether public communications represent solicitations subject to such rules. Finally, the updated guidance discusses Corp Fin’s views on whether SEC Rule 14e-5 on the prohibition of purchases outside of a tender offer applies to transactions involving Special Purpose Acquisition Companies.

For more information, click here.

The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy by Renee Jones, Acting Chief Accountant

Summary - Renee Jones, SEC Director of the Division of Corporation Finance (Corp Fin), recently discussed the shareholder proposal rule. Jones indicates that the shareholder proposal rule is “not self-executing. Each year questions arise as to whether a company may exclude a proposal under one of the bases for exclusion in the rule. To facilitate resolution and to forestall litigation, the Division has engaged in the informal practice of expressing its enforcement position on these matters. If a company intends to exclude a proposal from its proxy, Rule 14a-8(j) requires the company to “file its reasons” for doing so with the Commission. These notifications generally take the form of a “no-action” request seeking the Division’s concurrence that it will not recommend enforcement action if the company omits the proposal. If the staff declines to take a “no-action” position, the company is expected to include the proposal in the proxy statement for a shareholder vote. Proponents or companies can challenge the staff’s position in court and from time to time the courts have weighed in on staff or Commission action in interpreting Rule 14a8.”

For more information, click here.

Release No. 34-94615: Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

Summary - The SEC has issued for public comment proposed new Regulation SE under the Securities Exchange Act of 1934 (the Exchange Act) to “create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs). The new regulatory framework was one of the major reforms required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the over-the-counter derivatives market.”

If adopted, the proposal would:

Implement the Exchange Act’s trade execution requirement for security-based swaps and address the cross-border application of that requirement;
Implement Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps; and
Promote consistency between proposed Regulation SE and existing rules under the Exchange Act.

The SEC indicates that In developing this proposal, it “sought to harmonize as closely as practicable with parallel rules of the Commodity Futures Trading Commission (CFTC) that govern swap execution facilities and swap execution generally.” The SEC seeks to obtain regulatory benefits comparable to those under the CFTC regime while minimizing costs imposed on SBSEFs and their members.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94524: Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer

Summary - The SEC has issued for public comment two proposed rules that would require market participants, such as proprietary (or principal) trading firms, who assume certain dealer functions, in particular those who act as liquidity providers in the markets, to register with the SEC, become members of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The SEC indicates that if adopted, the proposed rules, “Exchange Act Rules 3a5-4 and 3a44-2, would further define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Act to identify certain activities that would cause persons engaging in such activities to be “dealers” or “government securities dealers” and subject to the registration requirements of Sections 15 and 15C of the Act, respectively.”

Under the proposed rules, any market participant that engages in activities as described in the rules would be a “dealer” or “government securities dealer” and, absent an exception or exemption, required to: register with the Commission under Section 15(a) or Section 15C, as applicable; become a member of an SRO; and comply with federal securities laws and regulatory obligations, including as applicable, SEC, SRO, and Treasury rules and requirements.

For more information, click here.

Release No. 33-11048: Special Purpose Acquisition Companies, Shell Companies, and Projections

Summary - The SEC has issued for public comment proposed new rules and amendments to enhance disclosure and investor protection in initial public offerings by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies, such as SPACs, and private operating companies.

The proposed new rules and amendments would require, among other things, “additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution. They also would require additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions. Further, the new rules would address issues relating to projections made by SPACs and their target companies, including the Private Securities Litigation Reform Act safe harbor for forward-looking statements and the use of projections in Commission filings and in business combination transactions.”

If adopted, the proposed rules would more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering.

The proposal also includes a new rule addressing the status of SPACs under the Investment Company Act of 1940, which is designed to increase attention among SPACs about this important assessment. Under the proposed rule, SPACs that satisfy certain conditions that limit their duration, asset composition, business purpose, and activities would not be required to register under the Investment Company Act.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94499: Removal of References to Credit Ratings From Regulation M

Summary - The SEC has proposed for public comment changes that would remove the references to credit rating agencies from existing exceptions provided in Rule 101 and Rule 102 of Regulation M, a set of rules designed to preserve market integrity by prohibiting activities that could artificially influence the market for an offered security.

The SEC “proposes to replace the credit-rating requirement included in Rule 101’s exception, which is available to distribution participants and their affiliated purchasers, with requirements that the nonconvertible debt securities and nonconvertible preferred securities meet a specified probability of default threshold, and that the asset-backed securities be offered pursuant to an effective shelf registration statement filed on the Commission’s Form SF-3. In addition, the proposed changes would eliminate Rule 102’s exception, which is available to issuers, selling security holders, and their affiliates, for investment grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities.”

The proposal also includes a recordkeeping requirement under Rule 17a-4(b)(17) for broker-dealers who make probability of default determinations in reliance on Rule 101’s proposed exception for nonconvertible debt securities and nonconvertible preferred securities.

The comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Summary - The SEC has proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.

The proposed rule changes would require disclosure of information about:

The company’s governance of climate-related risks and relevant risk management processes;
How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements;
How any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook; and
The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

The proposed rules also would require a company to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions. The SEC indicates that these proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a company’s “exposure to, and management of, climate-related risks, and in particular transition risks. The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.” The proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

Under the proposed rule changes, accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors.

For more information, click here.

Release No. 33-11038: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

Summary - The SEC proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The SEC indicates that the proposed amendments would “require, among other things, current reporting about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents.” The proposal would also require periodic reporting about:

A company’s policies and procedures to identify and manage cybersecurity risks;
The company’s board of directors' oversight of cybersecurity risk; and
Management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures.

In addition, the proposal would require annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise, if any. The proposed amendments are intended to better inform investors about a company's risk management, strategy, and governance and to provide timely notification to investors of material cybersecurity incidents.

For more information, click here.

Release No.33-11047: Technical Amendments to Commission Rules and Forms

Summary - The SEC has adopted technical amendments to various rules and forms under the Securities Act of 1933, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. These revisions make technical changes to correct typographical errors and erroneous cross-references, as well as to clarify instructions.

These amendments are effective upon publication in the Federal Register.

For more information, click here.

Release Nos. 33-11043: Adoption of Updated EDGAR Filer Manual

Summary - The SEC has published a new edition of its EDGAR Filer Manual. This new edition includes an amendment to Volume I to add a link to the Glossary of Commonly Used Terms, Acronyms, and Abbreviations. This new edition is also being updated to reflect various new SEC rule amendments.

For more information, click here.

Staff Accounting Bulletin No. 121

Summary - The SEC’s Division of Corporation Finance (Corp Fin) has published Staff Accounting Bulletin (SAB) No. 121 which provides guidance on accounting for obligations to safeguard crypto-assets an entity holds for platform users. Specifically, SAB 121 updates SAB Topic 5, Miscellaneous Accounting and provides guidance on various topics associated with these types of arrangements, including how entities that hold crypto-assets should account for liabilities associated with these arrangements. This guidance includes consideration of financial and non-financial disclosures associated with these types of arrangements.

For more information, click here.

SEC Staff Views: Staff Report on Nationally Recognized Statistical Rating Organizations

Summary - The SEC issued its annual Staff Report on Nationally Recognized Statistical Rating Organizations, providing a summary of the SEC staff’s examinations of Nationally Recognized Statistical Rating Organizations (NRSROs) and discussing the state of competition, transparency, and conflicts of interest among NRSROs.

The combined report includes a variety of substantive and organizational changes to provide greater transparency about NRSROs and their credit ratings businesses, and the market more broadly. The report highlights the risk-based approach of OCR's examination program. As described in the report, in addition to the eight statutorily mandated review areas, OCR staff examined the NRSROs’:

Consideration of ESG factors and products;
COVID-19 related risk areas;

Activities related to collateralized loan obligations, commercial real estate, and consumer asset-backed securities;
Adherence to policies, procedures, and methodologies with respect to rating low-investment grade corporate securities; and
Controls, policies, and procedures for ratings of municipal securities.

For more information, click here.

SEC Staff Speeches: Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards by Paul Munter, Acting Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter issued a Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards. Munter indicates that it “is critically important that the FASB, and the Trustees of the Financial Accounting Foundation (the “FAF”) in its important oversight role over the FASB, continue to improve processes for obtaining and considering investor and other stakeholder feedback, and for clearly communicating with those stakeholders regarding how that feedback has impacted the standard-setting process. On behalf of Commission staff in OCA, in this statement, we highlight below why engagement with investors and other stakeholders is vital to the FASB’s ability to develop high quality accounting and financial reporting standards, and we provide observations on the FASB’s standard-setting process, its agenda consultation, and the related ITC feedback from investors and other stakeholders.”

Munter discusses the importance of investors and other stakeholders to the standard-setting process. Also included in the statement is observations of the FASB’s agenda consultation. Munter indicated that in the FASB’s “decisions to add projects to its agenda or make changes to its standards, the FASB should clearly make the case for change, whether through a preliminary yet robust analysis of the need for a project or through an explanation of its consideration of the expected costs and benefits of a change. In the FASB’s consideration of what would provide decision-useful information to investors, and in making the case for change, it should consider costs to both preparers and users, including the costs to users from not making needed improvements to accounting and disclosure requirements.”

For more information, click here.

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a - 8 No -- Action Requests

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published an Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests. This announcement reconsiders Corp Fin’s previous guidance on responding to each shareholder proposal no-action requests.

The announcement indicates that during “the last two proxy seasons, the staff instead responded with a written letter only in limited instances and communicated the vast majority of responses via notations to a chart maintained on the Division’s website. We have reconsidered this approach, and after review of the practice we believe that written responses will provide greater transparency and certainty to shareholder proponents and companies alike. Beginning with the publication of this announcement, we will return to our prior practice and the staff will once again respond to each shareholder proposal no-action request with a written letter, similar to those issued in prior years. Our response letters will be posted publicly on the Division’s website in a timely manner. We will no longer communicate our responses via a chart, but we expect to publish a chart upon completion of the proxy season.”

For more information, click here.

SEC Staff Views: December 21, 2021: Sample Letter to China-Based Companies

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to China-Based Companies. This letter provides views of the Corp Fin staff, indicating that the recent events “have highlighted the risks associated with investing in companies that are based in or that have the majority of their operations in the People’s Republic of China (China-based companies). The Division of Corporation Finance believes that more prominent, specific, and tailored disclosure about these risks, and companies’ use of the variable interest entity (VIE) structure specifically, is warranted to provide investors with the information they need to make informed investment decisions and for companies to comply with their disclosure obligations under the federal securities laws.” Although not considered an exhaustive list, the letter contains sample comments that Corp Fin may issue China-based companies.

In light of these concerns, Corp Fin indicates that it is issuing comments to China-based companies seeking more specific and prominent disclosure about the legal and operational risks associated with China-based companies. Corp Fin’s comments focus on the need for clear and prominent disclosure regarding the structure of the company, including:

The relationship between the entity conducting the offering and the entities conducting the operating activities;
Risks associated with a company’s use of the VIE structure; and
The potential impact on the company’s operations and investors’ interests if such structure were disallowed or the contracts were determined to be unenforceable.

Corp Fin’s comments also focus on additional legal, regulatory, and enforcement risks that may apply to investments in China-based companies, such as the potential impact of the Holding Foreign Companies Accountable Act and related rules and any necessary PRC permissions a China-based company may need to operate its business or offer securities to foreign investors.

For more information, click here.

SEC Staff Views: Staff Statement Regarding Form CRS Disclosures

Summary - The SEC’s Standards of Conduct Implementation Committee (Committee) has issued Staff Statement Regarding Form CRS Disclosures. This document provides guidance on disclosures within Form CRS. Form CRS is a brief relationship summary designed to help retail investors make informed choices regarding what type of relationship (brokerage, investment advisory, or a combination of both) best suits a retail investor’s particular circumstances and investment objectives. The statement reviews observations from the Committee on disclosures within Form CRS on relationship summaries.

The Committee is comprised of staff from the Division of Trading and Markets, the Division of Investment Management, the Division of Examinations, and the Office of Investor Education and Advocacy.

For more information, click here.

SEC Staff Speeches: Statement of Commissioner Elad L. Roisman, Elad L. Roisman, Commissioner - December, 2021

Summary - SEC Commissioner Elad L. Roisman has informed President Joe Biden that he is resigning his position at the end of January 2022. In his statement, Roisman indicates that serving “the American people as a Commissioner and an Acting Chairman of this agency has been the greatest privilege of my professional life. It has been the utmost honor to work alongside my extraordinary SEC colleagues, who care deeply about investors and our markets. Over the next several weeks, I remain committed to working with my fellow Commissioners and the SEC’s incredible staff to further our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

For more information, click here.

SEC Staff Views: Announcement Regarding Personally Identifiable and Other Sensitive Information in Rule 14a-8 Submissions and Related Materials

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Announcement Regarding Personally Identifiable and Other Sensitive Information in Rule 14a-8 Submissions and Related Materials. The announcement indicates that Rule 14a-8 submissions and related materials frequently include personally identifiable and other sensitive information about shareholder proponents, companies and other parties that is not relevant to Corp Fin’s consideration of a no-action request. While the Corp Fin seeks to redact, to the extent practicable, this information before making the materials publicly available, this process can result in delays in the public dissemination of these materials.

Corp Fin announces that beginning immediately, companies and shareholder proponents should redact all personally identifiable and other sensitive information from Rule 14a-8 submissions and related materials prior to submitting them to the division. For example, companies should redact personally identifiable information from an individual shareholder’s cover letter accompanying the proposal. Shareholder proponents should also limit the personally identifiable and sensitive information in the materials they provide to companies by including only the information that is necessary to establish their eligibility to submit the proposal and for the company to communicate with them. Corp Fin may require parties to resubmit any materials it receives that contain personally identifiable or sensitive information, in which case Corp Fin will not consider the substance of those materials until they are resubmitted.

For more information, click here.

SEC Staff Speech, Falling Further Back - Statement on Chair Gensler’s Regulatory Agenda, Hester M. Peirce and Elad L. Roisman, Commissioner - December, 2021

Summary - SEC Commissioners Hester M. Peirce and Elad L. Roisman expressed their disappointment in SEC Chair Gary Gensler’s regulatory agenda. Peirce and Roisman indicated that the regulatory agenda “fails to include any items intended to facilitate capital formation and misses opportunities to foster fair, orderly, and efficient markets and further investor protection. Instead the agenda is brimming with plans to redo recently completed rules, add new regulatory obligations, and constrain investor choice.”

The SEC’s regulatory agenda lists short- and long-term regulatory actions that the agency plans to take.

For more information, click here.

SEC Staff Speech, Virtual Remarks at the Center for American Progress and Sierra Club: Down the Rabbit Hole of Climate Pledges, Caroline Crenshaw, Commissioner - December, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed her views on climate-change corporate disclosures. Crenshaw indicated that accurate “and reliable climate metrics are not only important for investors’ evaluation of sustainability efforts or how companies are spending shareholder money on politics, it is also critical for assessing fundamental and traditional corporate governance matters, like executive compensation. Recent surveys indicate that more executive compensation is being linked to “sustainability performance.” Linking executive pay to achieving ESG or sustainability-related goals can be a positive alignment of incentives. However, without reliable and consistent disclosures about those ESG targets, I wonder whether investors and Boards have the tools to accurately assess if such targets have been met and if that alignment between executive pay and ESG targets has been achieved.”

For more information, click here.

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests. The announcement indicates that in 2019, Corp Fin discontinued the longstanding practice of responding to each shareholder proposal “no-action request” with a written letter. During the last two proxy seasons, Corp Fin instead responded with a written letter only in limited instances and communicated the vast majority of responses via notations to a chart maintained on the division’s website.

Corp Fin indicates that it has “reconsidered this approach, and after review of the practice we believe that written responses will provide greater transparency and certainty to shareholder proponents and companies alike. Beginning with the publication of this announcement, we will return to our prior practice and the staff will once again respond to each shareholder proposal no-action request with a written letter, similar to those issued in prior years. Our response letters will be posted publicly on the Division’s website in a timely manner. We will no longer communicate our responses via a chart, but we expect to publish a chart upon completion of the proxy season.”

For more information, click here.

SEC Staff Views: Remarks Before the Healthy Markets Association Conference, Gary Gensler, Chairman - December, 2021

Summary - SEC Chair Gary Gensler recently shared his thoughts on the use of special purpose acquisition companies (SPACs) to go public. Gensler indicates that due to “the various moving parts and SPACs’ two-step structure, I believe these vehicles may have additional conflicts inherent to their structure. There are conflicts between the investors who vote then cash out, and those who stay through the deal — what might be called “redeemers” and “remainers.” Thus, to reduce the potential for such information asymmetries, conflicts, and fraud, I’ve asked staff for proposals for the Commission’s consideration around how to better align the legal treatment of SPACs and their participants with the investor protections provided in other IPOs, with respect to disclosure, marketing practices, and gatekeeper obligations.”

Regarding disclosures and transparency, Gensler indicates that he has asked the SEC to provide recommendations about how investors might be better informed about the fees, projections, dilution, and conflicts that may exist during all stages of SPACs, and how investors can receive those disclosures at the time they’re deciding whether to invest. The SEC staff is also considering clarifying disclosure obligations under existing rules.

Gensler raised concerns of who, in the SPAC transaction process, is performing the role of “gatekeepers,” which may include directors, officers, SPAC sponsors, financial advisors, and accountants. Gensler indicates that there may be “some who attempt to use SPACs as a way to arbitrage liability regimes. Many gatekeepers carry out functionally the same role as they would in a traditional IPO but may not be performing the due diligence that we’ve come to expect. Make no mistake: When it comes to liability, SPACs do not provide a “free pass” for gatekeepers.” The SEC staff is expected to provide recommendations about how the SEC can better align incentives between gatekeepers and investors, and how the SEC can address the status of gatekeepers’ liability obligations. Gensler cautioned that as the SEC and its staff evaluates these policy areas, the SEC’s Division of Enforcement continues to be the “cop on the beat” to ensure that investors are being protected in the SPAC space.

For more information, click here.

SEC Staff Views: AICPA & CIMA Conference on Current SEC and PCAOB Developments - 2021

Summary - As discussed above, on December 6-8, 2021, representatives of the SEC, FASB, PCAOB, IASB, and AICPA spoke at the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments. Topics discussed during the 2021 conference covered a number of important financial reporting and auditing issues. Principal themes of the conference included:

The importance of transparency and integrity on financial reporting, including the role of the auditor in providing assurance and trust in the financial reports of entities;
Disclosure and assurance of economic, social, or governance (ESG) matters (integrated or sustainability reporting);
Disclosures and reporting special-purpose acquisition company (SPAC) transactions;
The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls, and the important role of auditors have in testing the effectiveness of ICFR; and
PCAOB standard-setting, inspection, and enforcement.

For more information, click here.

SEC Staff Views: Staff Accounting Bulletin No. 120

Summary - The SEC staff has issued guidance for companies about how to properly recognize and disclose compensation cost for "spring-loaded awards" made to executives.

“Spring-loaded” awards are share-based compensation arrangements where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction.

According to Staff Accounting Bulletin (SAB) No. 120 prepared by the SEC's Office of the Chief Accountant and the Division of Corporation Finance, non-routine spring-loaded grants merit particular scrutiny by those responsible for compensation and financial reporting governance at public companies.

The SEC staff believes that as companies measure compensation actually paid to executives, they must consider the impact that the material nonpublic information will have upon release. In other words, companies should not grant spring-loaded awards under any mistaken belief that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards.

"It is important that companies' accounting and disclosures reflect the economics and terms of these compensation arrangements," SEC Chair Gary Gensler said. "This gets to the SEC's remit to protect investors."

The statements in SABs are not rules or interpretations of the Commission nor are they published bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

For more information, click here.

SEC Staff Views: SEC Staff Statement on LIBOR Transition - Key Considerations for Market Participants

Summary - The SEC has published SEC Staff Statement on LIBOR Transition—Key Considerations for Market Participants. The SEC staff indicates that this statement is being issued to remind investment professionals of their obligations when recommending LIBOR-linked securities and to remind companies and issuers of asset-backed securities of their disclosure obligations related to the LIBOR transition. This statement follows previous staff statements addressing various aspects of the forthcoming LIBOR transition.

Topics discussed in this statement include:

Background and general considerations for market participants;
Broker-dealer registrants: recommendations to retail customers;
Broker-dealer registrants: municipal securities underwriting and sales to customers;
Registered investment advisers and funds; and
Disclosure considerations for public companies and asset-backed securities issuers.

Regarding disclosure considerations, the SEC staff encourages companies to provide qualitative disclosures and, when material, quantitative disclosures, such as the notional value of contracts referencing LIBOR and extending past December 31, 2021 or June 30, 2023, as applicable, to provide context for the status of the company’s transition efforts and the related risks.

In general, companies generally include disclosures about the LIBOR transition as part of risk factors, recent developments, MD&A and/or quantitative and qualitative disclosures about market risk. To the extent a company provides this disclosure in response to more than one disclosure requirement within a filing, consider providing a cross-reference or otherwise summarizing or tying the information together so an investor has a complete and clear view of the company’s plan for the discontinuation of LIBOR, the status of the company’s efforts, and the related risks and impacts.

For more information, click here.

SEC Staff Views: The Lessons of Structured Data, Caroline Crenshaw, Commissioner - November, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed structured data (XBRL) and the need to provide better data going forward. Crenshaw indicated that she believes XBRL data is delivering a myriad benefits, “there is room for improvement in terms of the quality and accuracy of the data. Some users have found material error rates in data tagged in our filings, including errors in tags that are likely to be crucially important to investors like Revenues, Net Income, and Assets, and scaling errors that can be impactful.”

For more information, click here.

SEC Staff Views: Remarks at the PepsiCo-PwC CPE Conference: Controlling Internal Controls, Caroline Crenshaw, Commissioner - November, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed internal accounting and controls and ESG risks facing companies today. Crenshaw indicated that “internal accounting controls must be dynamic enough to consider and respond to changes in the markets, such as those posed by ESG issues. Companies have to evolve over time because the market place is constantly changing in response to new developments and challenges. These changes can be prompted by new technology, developments in the global economy, or even by our planet. Change drives innovation for not just corporate America, but investors, consumers and citizens. Change can be a good thing. But as markets change, so do the risks that can impact a company’s financial statements. Corporate internal accounting controls must evolve as well. Although these are relatively technical matters often thought of as within the remit of accounting and legal professionals of a specific company, I am regularly reminded that, in the aggregate, these details matter to all Americans.”

For more information, click here.

SEC Staff Views: President’s Working Group Report on Stablecoins, Gary Gensler, Chairman - November, 2021

Summary - SEC Chair Gary Gensler issued a statement in response to the President’s Working Group Report on Stablecoins. This week, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, published a report on stable value coins, or so-called stablecoins. Stablecoins are crypto tokens pegged or linked to the value of fiat currencies. Gensler noted that based on the report’s findings, “the use of stablecoins presents a number of public policy challenges with respect to protecting investors.”

Gensler indicates that the PWG report “highlights a number of recommendations to address these public-policy challenges. While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.”

For more information, click here.

SEC Staff Views: Prepared Remarks Before the SIFMA Annual Meeting, Gary Gensler, Chairman - November, 2021

Summary - SEC Chair Gary Gensler recently discussed capital market structure. Gensler indicates that given the “rapidly changing technology and business models, I think we at the SEC need to look for opportunities to freshen up our rules to continue to maintain markets that are the envy in the world.” Gensler went on to say that ultimately, “promoting fair, orderly, and efficient markets can help reduce the cost of capital for issuers and increase the rate of returns for investors across each of these markets. This helps contribute to economic growth and is a competitive advantage for our nation.”

For more information, click here.

SEC Staff Views: Statement regarding Shareholder Proposals: Staff Legal Bulletin No. 14L, Gary Gensler, Chairman - November, 2021

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Staff Legal Bulletin No. 14L, Shareholder Proposals. This guidance provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934. Specifically, this bulletin rescinds Staff Legal Bulletin Nos. 14I, 14J and 14K (the “rescinded SLBs”) after a review of Corp Fin staff experience applying the guidance in them. In addition, to the extent the views expressed in any other prior Corp Fin staff legal bulletin could be viewed as contrary to those expressed herein, this staff legal bulletin controls.

This bulletin outlines Corp Fin’s views on Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. We are also republishing, with primarily technical, conforming changes, the guidance contained in SLB Nos. 14I and 14K relating to the use of graphics and images, and proof of ownership letters. In addition, we are providing new guidance on the use of e-mail for submission of proposals, delivery of notice of defects, and responses to those notices.

In Rule 14a-8, the SEC has provided a means by which shareholders can present proposals for the shareholders’ consideration in the company’s proxy statement. This process has become a cornerstone of shareholder engagement on important matters. Rule 14a-8 sets forth several bases for exclusion of such proposals. Companies often request assurance that the staff will not recommend enforcement action if they omit a proposal based on one of these exclusions (“no-action relief”). Corp Fin is issuing this bulletin to streamline and simplify our process for reviewing no-action requests, and to clarify the standards the staff will apply when evaluating these requests.

For more information, click here.

SEC Staff Views: Statement on PCAOB Rule 6100 to Fulfill Obligations under the HFCAA, Gary Gensler, Chairman - November, 2021

Summary - The SEC has approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.

The SEC indicates that the Sarbanes-Oxley Act of 2002, as amended, mandates that the PCAOB inspect registered public accounting firms in both the United States and in foreign jurisdictions and investigate potential statutory, rule, and professional standards violations committed by registered public accounting firms and their associated persons. The HFCAA requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. PCAOB Rule 6100 establishes the:

Process for the PCAOB’s determinations under the HFCAA;
Factors the PCAOB will evaluate and the documents and information the PCAOB will consider when assessing whether a determination is warranted;
Form, public availability, effective date, and duration of such determinations; and
Process by which the PCAOB will reaffirm, modify, or vacate any such determinations.

SEC Chair Gary Gensler issued a statement in connection with the passage of this rule.

For more information, click here.