Comment Letter Trends: Top 10 Topics in Reviews

Deloitte recently issued a 218-page roadmap on comment letter trends that includes developments on financial reporting topics through November 6, 2020. In terms of insights about comments related to the COVID-19 pandemic, the report says that early trends indicate that MD&A and risk factor trends have been main focus areas. Good news included in the report is that for over the last five years, there’s been a notable decline in the number of reviews with comment letters and the number of comment letters issued. For those beginning to prepare for year-end reporting, it’s helpful to be aware of the leading areas for comment and the report lists these as the “top 10”:

1. MD&A – comments increased on results of operations, highlighting the Staff’s continuing focus on greater transparency and specificity in disclosures about operating results. Comments on Covid-19 have focused on the pandemic’s impact on future operating results and future financial condition, known trends or uncertainties related to COVID-19 that will have a material favorable or unfavorable impact on income from continuing operations, and discussions of current liquidity and availability of financial resources
2. Non-GAAP measures – the report lists several areas of continued focus, including whether there is undue prominence of non-GAAP measures, enhancing disclosure related to the purpose and use of the measures, identification and clear labeling and reconciliation requirements
3. Revenue recognition – largest volume of comments focused on disclosure of significant judgments used in applying the standard
4. Segment reporting – identification and aggregation of operating segments, changes in reporting segments, considerations for entities with a single reportable segment and entity-wide disclosures about products or services
5. Signatures, exhibits and agreements – form and content of certifications, and material contracts, including requests for them to be filed as exhibits
6. ICFR – among others, evaluation of severity of control deficiencies, including those related to immaterial misstatements and disclosures of material changes in ICFR, including the impact and remediation of material weaknesses
7. Fair value – valuation techniques and inputs used, use of third-party pricing services and fair value estimates related to revenue recognition, goodwill impairment and share-based payments
8. Contingencies – focus on specificity of disclosures and amounts accrued, estimates for reasonably possible losses and disclosures related to loss contingencies and whether they have been updated over time as circumstances change
9. Intangible assets and goodwill – goodwill impairment disclosures, including early-warning disclosures and the specific circumstances that led to the charge in the period of impairment rather than general market factors, asset groupings for impairment testing and whether or why an interim impairment test was performed and the results of the test
10. Inventory and cost of sales – accounting policy disclosures regarding inventory valuation, including adjustments related to excess and obsolete inventories

-Lynn Jokela, TheCorporateCounsel.net November 17, 2020