By Mark S. Nelson, J.D.
This month, the Division of Corporation Finance posted a document titled "Filing Review Process" on its website http://www.sec.gov/divisions/corpfin/cffilingreview.htm. The new document is the most concise explanation of the disclosure review and comment letter process to date and ties together many important ideas. This blog entry will review the new document and several other press releases, staff speeches, and commission reports describing the comment letter process. The bibliography following the blog contains links to the original documents.
The SEC announced its plans to publicly release staff comment letters and issuer responses in a press release on June 24, 2004. One year later, after overcoming technical issues, the staff began to release comments via EDGAR starting with the May 12, 2005 upload. Initially the volume of comment letters was very low, but by mid-year 2006, the volume began to increase as the staff cleared the backlog. The public comment letters program covers filings made after August 1, 2004 to the present, although earlier comments must be obtained via FOIA request. Staff comment letters regarding disclosure review are distinguishable from the comments submitted by interested persons regarding proposed rulemaking. Currently, there are approximately 70,000 comment letters and issuer responses available on EDGAR plus a significant number of issuer responses that have been attached as exhibits to filings.
The staff have also published comment letters that were subject to two special reviews pertaining to International Financial Reporting Standards (IFRS) and the new executive compensation rules. The list of companies subject to the IFRS review is available on the SEC's website. Executive compensation comments are not well disclosed on the SEC's website, but can be identified by reviewing the initial staff letter for a paragraph stating that the review is limited to the issuer's executive compensation disclsoure. The CCH division of Wolters Kluwer reproduces all publicly released staff comment letters posted on EDGAR in a topically organized and searchable database. Abstracts of significant comments are published in a related newsletter.
According to the division's "Filing Review Process" document, the division staff begins the disclosure review process by conducting reviews required by the Sarbanes-Oxley Act of 2002. Under SOX Section 408, the staff must review each public company's disclosure once every three years. The staff also conducts selective reviews of public offerings, mergers, proxies and other transactional filings based upon the results of preliminary reviews. The staff, however, has not publicly disclosed the criteria used in preliminary reviews. Once the decision to conduct a review has been made, the staff may undertake a full review of the entire filing, perform a review of financial statements only, or engage in a targeted issue review focused on specific items of disclosure. The eleven offices within the disclosure review organization are dedicated to specific industries and comprise 80 percent of the division's employees, with 25 to 35 attorneys and accountants assigned to each office. The cover letter preceding each staff comment letter indicates which office conducted a particular review.
The staff do not always issue comments as part of the disclosure review process, but when comments are issued to a company, the staff and the issuer engage in a back-and-forth dialog regarding the items noted by the staff. Communications are often times in written form, but the dialog also can occur telephonically or by facsimile. Rule 83 accords an issuer the opportunity to assert confidentiality over portions of its response dealing with competitively sensitive information. Confidential materials are not reproduced when the comments are posted on EDGAR. Many of the staff's comments require an issuer to address an item in its future filings, although the staff will occasionally ask a company to amend or formally restate its filings. An issuer also must file a so-called "Tandy letter" stating that the staff's comments may not be raised as a defense to any proceeding. At the conclusion of the comment letter process, the staff typically will issue a "No Further Comments" letter or , at an issuer's request, the staff may declare a registration statement to be effective. Staff comments and issuer responses are then published on EDGAR no earlier than 45 days after the disclosure review period has ended.
At any time during the comment letter process, an issuer may request that the staff reconsider any comments it has provided to the issuer. The reconsideration process is informal and may be written or oral. In general, an issuer should first contact the examiner for clarification before it responds. Next, the issuer may speak to the reviewer who approved the comments. Reconsideration by more senior staff depends on the type of issue to be reconsidered. Legal and textual matters should be addressed, in order, to the legal branch chief in the assistant director office, the assistant director, the associate director, the deputy director, and the director of the Corporation Finance division. Similarly, accounting issues should be directed to the accounting branch chief in the assistant director office, the senior assistant chief accountant of the relevant office, the associate chief accountant in the division's office of the chief accountant, and the division's chief accountant.
For additional insight into the disclosure review and comment letter process, the following bibliography should be consulted:
Press Release (June 24, 2004): SEC Staff to Publicly Release Comment Letters and Responses http://www.sec.gov/news/press/2004-89.htm
Press Release (May 9, 2005): SEC STAFF TO BEGIN PUBLICLY RELEASING COMMENT LETTERS AND RESPONSES http://www.sec.gov/news/press/2005-72.htm
Speech by John White (September 25, 2006):An Expansive View of Teamwork: Directors, Management and the SEC http://www.sec.gov/news/speech/2006/spch092506jww.htm
Speech by John White (June 5, 2008): IFRS and U.S. Companies: A Look Ahead http://www.sec.gov/news/speech/2008/spch060508jww.htm
This month, the Division of Corporation Finance posted a document titled "Filing Review Process" on its website http://www.sec.gov/divisions/corpfin/cffilingreview.htm. The new document is the most concise explanation of the disclosure review and comment letter process to date and ties together many important ideas. This blog entry will review the new document and several other press releases, staff speeches, and commission reports describing the comment letter process. The bibliography following the blog contains links to the original documents.
The SEC announced its plans to publicly release staff comment letters and issuer responses in a press release on June 24, 2004. One year later, after overcoming technical issues, the staff began to release comments via EDGAR starting with the May 12, 2005 upload. Initially the volume of comment letters was very low, but by mid-year 2006, the volume began to increase as the staff cleared the backlog. The public comment letters program covers filings made after August 1, 2004 to the present, although earlier comments must be obtained via FOIA request. Staff comment letters regarding disclosure review are distinguishable from the comments submitted by interested persons regarding proposed rulemaking. Currently, there are approximately 70,000 comment letters and issuer responses available on EDGAR plus a significant number of issuer responses that have been attached as exhibits to filings.
The staff have also published comment letters that were subject to two special reviews pertaining to International Financial Reporting Standards (IFRS) and the new executive compensation rules. The list of companies subject to the IFRS review is available on the SEC's website. Executive compensation comments are not well disclosed on the SEC's website, but can be identified by reviewing the initial staff letter for a paragraph stating that the review is limited to the issuer's executive compensation disclsoure. The CCH division of Wolters Kluwer reproduces all publicly released staff comment letters posted on EDGAR in a topically organized and searchable database. Abstracts of significant comments are published in a related newsletter.
According to the division's "Filing Review Process" document, the division staff begins the disclosure review process by conducting reviews required by the Sarbanes-Oxley Act of 2002. Under SOX Section 408, the staff must review each public company's disclosure once every three years. The staff also conducts selective reviews of public offerings, mergers, proxies and other transactional filings based upon the results of preliminary reviews. The staff, however, has not publicly disclosed the criteria used in preliminary reviews. Once the decision to conduct a review has been made, the staff may undertake a full review of the entire filing, perform a review of financial statements only, or engage in a targeted issue review focused on specific items of disclosure. The eleven offices within the disclosure review organization are dedicated to specific industries and comprise 80 percent of the division's employees, with 25 to 35 attorneys and accountants assigned to each office. The cover letter preceding each staff comment letter indicates which office conducted a particular review.
The staff do not always issue comments as part of the disclosure review process, but when comments are issued to a company, the staff and the issuer engage in a back-and-forth dialog regarding the items noted by the staff. Communications are often times in written form, but the dialog also can occur telephonically or by facsimile. Rule 83 accords an issuer the opportunity to assert confidentiality over portions of its response dealing with competitively sensitive information. Confidential materials are not reproduced when the comments are posted on EDGAR. Many of the staff's comments require an issuer to address an item in its future filings, although the staff will occasionally ask a company to amend or formally restate its filings. An issuer also must file a so-called "Tandy letter" stating that the staff's comments may not be raised as a defense to any proceeding. At the conclusion of the comment letter process, the staff typically will issue a "No Further Comments" letter or , at an issuer's request, the staff may declare a registration statement to be effective. Staff comments and issuer responses are then published on EDGAR no earlier than 45 days after the disclosure review period has ended.
At any time during the comment letter process, an issuer may request that the staff reconsider any comments it has provided to the issuer. The reconsideration process is informal and may be written or oral. In general, an issuer should first contact the examiner for clarification before it responds. Next, the issuer may speak to the reviewer who approved the comments. Reconsideration by more senior staff depends on the type of issue to be reconsidered. Legal and textual matters should be addressed, in order, to the legal branch chief in the assistant director office, the assistant director, the associate director, the deputy director, and the director of the Corporation Finance division. Similarly, accounting issues should be directed to the accounting branch chief in the assistant director office, the senior assistant chief accountant of the relevant office, the associate chief accountant in the division's office of the chief accountant, and the division's chief accountant.
For additional insight into the disclosure review and comment letter process, the following bibliography should be consulted:
Press Release (June 24, 2004): SEC Staff to Publicly Release Comment Letters and Responses http://www.sec.gov/news/press/2004-89.htm
Press Release (May 9, 2005): SEC STAFF TO BEGIN PUBLICLY RELEASING COMMENT LETTERS AND RESPONSES http://www.sec.gov/news/press/2005-72.htm
Speech by John White (September 25, 2006):An Expansive View of Teamwork: Directors, Management and the SEC http://www.sec.gov/news/speech/2006/spch092506jww.htm
Speech by John White (June 5, 2008): IFRS and U.S. Companies: A Look Ahead http://www.sec.gov/news/speech/2008/spch060508jww.htm