As part of their Disclosure Effectiveness Initiative, the Securities and Exchange Commission (SEC) recently proposed interpretive guidance to eliminate some disclosures in Regulation S-K and to amend other requirements to better focus on material information in Item 303, “Management’s Discussion and Analysis.”

United States flag standing in front of a stone capitol building; image used for blog post about SEC proposal to change Regulation S-K

More specifically, the SEC’s proposal would eliminate duplicative disclosures and modernize “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (known as MD&A) to benefit investors and to simplify compliance for issuers. The proposed amendments are part of a comprehensive evaluation of the SEC’s disclosure requirements intended to improve the SEC’s overall disclosure regime. Specifically, the proposed amendments would eliminate Item 301 of Regulation S-K, “Selected Financial Data,” and Item 302 of Regulation S-K, “Supplementary Financial Information,” as the information is largely duplicative of other requirements.


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In response to the transparency issues around proxy advisory firms, the Securities and Exchange Commission (“SEC”) recently proposed new rules for proxy advisory firms. A proxy advisory firm helps institutional investors vote their shares at shareholder meetings. Because institutional investors have a wide variety of holdings, the specific risks and issues they must assess vary. The services proxy advisory firms provide include agenda assessment, research and recommendations on how to vote on shareholder proposals at publicly traded companies, and other offerings.

closeup shot of three men sitting at a wooden table by a glass window; image used for a blog post about the Securities Exchange Commission proposed rules for proxy advisory firms and shareholder voting

While more information can be a good thing, critics believe the additional information proxy advisory firms provide isn’t always conveyed with the best interests of Main Street investors in mind. So, if finalized, the SEC’s new rules would require proxy advisory firms to disclose more about their process and potential conflicts of interest and give companies the opportunity to make revisions before making final recommendations to clients. Specifically, the SEC’s proposals would revise the existing proxy advisory rules in three significant ways:


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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Nicole Riley, an audit senior manager and one of the faces of the PKF Texas Broker-Dealer team. Nicole, welcome back to the Playbook.

Nicole: Great to be back.

Jen: So, the last time you were here we discussed FINRA and the SEC in relation to broker-dealers. Are there common issues that FINRA tends to find when they’re looking at broker-dealers?

Nicole: One of the more common things that we continue to see coming out of these audits that they’re doing, even though the rules have been around since 2003, are issues with expense sharing agreements.


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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back once again with Nicole Riley, one of our audit senior managers and one of the faces of PKF Texas’ broker-dealer team. Nicole, welcome back to the Playbook.

Nicole: Great to be here.

Jen: So, broker-dealer, what is that?

Nicole: So, a broker-dealer is a highly regulated company that traditionally buys and sells securities. That’s really where the name comes from is because they can be selling and buying for a customer where they’re the agent or the broker, or they could be buying and selling for their own accounts where they’re the principal in the transaction or a dealer, hence, broker-dealer.

But really the modern broker-dealer is doing more than just buying and selling securities, they publish investment research, they are helping companies raise capital, they’re helping clients find investments and place their money and they’re also providing investment advice.

Jen: Okay, so you mentioned highly regulated – what does that actually look like?


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In response to the American Institute of Certified Public Accountants Private Companies Practice Section’s Technical Issues Committee (TIC) request letter from May 13, 2019, the Financial Accounting Standards Board (FASB) has voted to delay effective dates for three major standards for private companies and certain other entities. These standards include accounting for leases, credit losses (known as CECL) and hedging activities.

through a window, several black rolling chairs sit around a wooden table, a meeting room, maybe for FASB voting on delaying major standards

Currently, an Accounting Standards Update (ASU) is being drafted, which will change the effective dates. This will be issued after a formal written ballot by the board, expected to occur in November. FASB members shared that one of the advantages of the delay is to “allow preparers with limited resources to learn from the implementation performed by large public companies that possess more staffing and resources.”


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The SEC issued two final rules affecting broker-dealers and investment advisors in an open public meeting on June 5, 2019, which are effective September 10, 2019.

These new rules are designed to increase investor protections and require broker-dealers to adhere to a new standard of conduct, which goes beyond the basic suitability standards currently in place. Although this is still not equivalent to the fiduciary standard required by investment advisors, this new rule will result in big changes with broker-dealers and how they manage and avoid conflicts of interest.
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Earlier this summer, the SEC proposed amendments to improve disclosures relating to acquisitions and dispositions of businesses under:

  • Rule 3-05,
  • Rule 3-14 and
  • Article 11 of Regulation S-X.

The proposed rule change impacts small businesses and their investors.

For investors, the amendments could improve the financial information about acquired and disposed businesses to facilitate more

Based on the number of SEC comment letters publicly published, the overall volume has been steadily decreasing for the last nine years. We looked at the most common issues raised in an SEC comment letter; the table below shows 10 of the top issues discussed in these letters over the past three years. It is important to note that, in many cases, more than one issue is mentioned.

numeric table listing common issues with SEC comment letters and the numbers of reviews with a comment on respective topic

The major topics in 2018 were similar to what we have seen in 2016 and 2017, with MD&A, the use of non-GAAP measures and fair value comments at the top of the list. There are, however, some new emerging trends SEC filers should consider:


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