SECHotTopicsYearEndUpdateNovember152023.pdf

November 15, 2023
SEC hot topics:
Year-end update
The Dbriefs Financial Reporting series
Jude Alaba, managing director, Deloitte & Touche LLP
Hero Alimchandani, managing director, Deloitte & Touche LLP
Chris Chiriatti, managing director, Deloitte & Touche LLP
Zach Poncik, senior manager, Deloitte & Touche LLP
Melanie Tuttle, senior manager, Deloitte & Touche LLP

SEC hot topics: Year-end update
Copyright © 2023 Deloitte Development LLC. All rights reserved. 2
Agenda
SEC priorities and rulemaking
Non-GAAP measures and metrics
SEC review process and comment letter
trends
Q&A

Items to note
Items to note
Keep in mind:
This webcast does not provide official
Deloitte & Touche LLP interpretive
accounting guidance.
Check with a qualified adviser before
taking any action.
Learning objective:
To enhance participants’
understanding of important
accounting issues and developments
pertaining to recent actions of the
SEC and others.

SEC hot topics: Year-end update 4
Copyright © 2023 Deloitte Development LLC. All rights reserved.
Are you a financial statement preparer, user, auditor,
or other interested party?
• Preparer
• User
• Auditor
• Other
• Don’t know/not applicable

SEC PRIORITIES AND RULEMAKING

SEC organization and structure
Source: SEC.gov
Disclosure Review Program
(9 industry-based offices)
Cicely LaMothe
Corp Fin – Office of the
Chief Accountant
Lindsay McCord
Office of Chief Accountant
Paul Munter
Trading and
Markets
Corporation Finance
Erik Gerding
Economic and
Risk Analysis
Investment
Management
Examinations
Enforcement
Commissioner
Hester Peirce
(Term expires 2025)
Chair
Gary Gensler
(Term expires 2026)
Commissioner
Mark Uyeda
(Term expires 2023)
Commissioner
Caroline Crenshaw
(Term expires 2024)
Commissioner
Jaime Lizárraga
(Term expires 2027)

• Cybersecurity disclosures
• Executive compensation “clawback”
• Share repurchase reporting
• Pay versus performance disclosures
• Rule 10b5-1 and Insider Trading
• Climate disclosures
• SPACs
• Corporate board diversity disclosures
• Human capital management disclosures
SEC PRIORITIES
AND RULEMAKING
PROPOSED RULES
ON THE HORIZON
FINAL RULES
PROPOSED RULES

Which of the final rules do you expect will have the most
impact to your organization?
• Clawback
• Cybersecurity
• Share repurchase
• All the above

Cybersecurity
• Due within four business days of when
a cyber incident is determined to be
material
• Describe material aspects of nature,
scope, and timing of incident, as well as
material impacts (i.e., financial
condition and results of operations)
• Processes for the assessment,
identification, and management of
material risks from cybersecurity
threats
• Whether risks from cybersecurity
threats affect business strategy,
financial planning, or capital allocation
• Describe board’s oversight of risks from
cybersecurity threats
• Management’s role in assessing and
managing material risks from
cybersecurity threats
FORM 8-K - INCIDENTS
FORM 10-K –
RISK MANAGEMENT & STRATEGY
FORM 10-K - GOVERNANCE
• Final rule issued July 26, 2023
• Form 8-K requirements apply starting December 18, 2023, for non-SRCs
• Broad definition of cybersecurity incident
• Applies to systems owned OR used by registrants (e.g., cloud)
• Disclosure may be delayed if US Attorney General approves

Material cybersecurity incident
Materiality considerations
The guidance emphasizes that companies should make materiality determinations without “unreasonable delay.”
Materiality*
assessments
Nature, extent, and potential magnitude
The magnitude of cybersecurity risks or incidents depends on, among other things,
their nature, extent, and potential magnitude.
Importance of compromised information
The impact to the company’s “crown jewels”—most critical data and assets should
be evaluated.
Business and scope of operations
Consider the impact of the cybersecurity risks and incidents related to
a company’s business and scope of operations. It does not depend on whether the
registrant owns the impacted system.
Range of harm and probability of an adverse outcome
The materiality of cybersecurity risks and incidents depends on the range of harm
that such incidents could cause and the probability an adverse outcome will occur.
Financial, legal, and reputational consequences
The possibility of litigation or regulatory investigations may also impact materiality
assessments.
*Consistent with the standard of materiality articulated by the Supreme Court, the final rule holds that a fact is material if there is a substantial likelihood a reasonable shareholder would consider it
important in an investment decision or disclosure would significantly alter the total mix of information available.

Executive compensation “clawback”
11
11
• Final rule—issued October 26, 2022.
• Mandates listing standards that require companies to implement recovery policy to claw
back excess incentive-based compensation (IBC) received by executive officers for the
three fiscal years before the determination of a financial statement restatement.
• Applies to all issuers (including EGC, SRC, FPI) with limited exceptions.
• Applies to current and former executive officers on a “no fault” basis.
• Applies to both “Big R” restatement and “little r” restatement.
• IBC includes both cash-based and equity-based incentives, including certain market-based
awards (e.g., those dependent on stock price or TSR) that is granted, earned, or vested
based wholly or in part upon the attainment of a financial reporting measure.
• Limited exceptions to clawback requirement (external costs outweigh clawback, conflicts
with laws, or impacts tax status of deferred compensation plan).

Executive compensation “clawback”
12
• Adds two check boxes to annual report cover pages:
1. Whether the financial statements of the issuer included in the filing reflect correction
of an error to previously issued financial statements.
2. Whether any of those error corrections are restatements that required a recovery
analysis of IBC received by any of the issuer’s executive officers during the relevant
recovery period.
• Companies will be required to file their compensation recovery policy as an exhibit to their
annual report and tag it with Inline XBRL.
• For each restatement, additional disclosures regarding the company’s clawback analysis
would be required.
• Awards made before the effective date of the listing standard, but that are received after
such date, would be subject to clawback.

What do you believe the most challenging part of making
a materiality determination for a cyber incident will be?
• Timing
• Lack of ability to quantify
• Gathering input from all departments
• All of the above

Share repurchase reporting
14
14
• Final rule—the first disclosures for domestic calendar year-end companies will be in the
2023 Form 10-K covering Q4 2023 repurchase activity.
̶ The Fifth Circuit of the U.S. Court of Appeals ruled in favor of the U.S. Chamber of
Commerce on October 31, 2023, that the SEC did not sufficiently justify the cost-benefit
analysis of the rule, and gave the SEC 30 days to provide additional analyses
• Four key components:
̶ Exhibit detailing daily repurchase activity each quarter;
̶ Check a box indicating if certain directors or officers traded within four business days of
public announcement of an issuer’s repurchase plan or program;
̶ Narrative disclosure about the issuer’s repurchase programs and practices in its periodic
reports; and
̶ Disclosure of the adoption and termination of 10b5-1 trading arrangements each
quarter.

(a) (b) (C) (d) (e) (f) (g) (h) (i)
Execution
Date
Class of
Shares (or
Units)
Total Number
of Shares (or
Units)
Purchased
Average Price
Paid per
Share (or
Unit)
Total Number
of Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Aggregate
Maximum
Number (or
Approximate
Dollar Value)
of Shares (or
Units) that
May Yet Be
Purchased
Under the
Publicly
Announced
Plans or
Programs
Total Number
of Shares (or
Units)
Purchased on
the Open
Market
Total Number
of Shares (or
Units)
Purchased
that re
Intended to
Qualify for
the Safe
Harbor on
Rule 10b-18
Total Number
of Shares (or
Units_
Purchased
Pursuant to a
Plan that is
Intended to
Satisfy the
Affirmative
Defense
Conditions of
Rule 10b5-
1(c)
Total
15
15
• For each day with repurchase activity, the table must include:
̶ Class of shares.
̶ Number of shares purchased (and portion related to publicly announced plan, intended
to qualify under Rule 10b-18 and 10b5-1c).
̶ Average price paid per share.
̶ Maximum amount remaining on publicly announced plans.

16
16
• Narrative disclosures must include:
̶ Objectives or rationales for each share repurchase plan or program;
̶ Process or criteria used to determine the amount of repurchases;
̶ Policies and procedures relating to the purchases and sales of the company’s securities
during a repurchase program by its officers and directors, including whether there are
any restrictions on such transactions; and,
̶ Number of shares purchased other than through a publicly announced plan or
program, and the nature of the repurchase transactions, such as whether the purchases
were made pursuant to equity compensation arrangements, tender offers, etc.

Proposed climate disclosure rule
• Applicable to domestic and foreign registrants (except asset-backed issuers)
• Disclosures required in registration statements (including IPOs) and annual reports, due at the same time as the filing
Financial Statements
Financial statements Outside the financial statements (New item 6)
Disclosure:
For climate-related events and transition activities:
1) Financial impact metrics
2) Expenditure metrics
3) Discuss financial estimates, assumptions
Controls: Subject to internal control
over financial reporting (ICFR)
Attestation: Part of financial statement and ICFR audit
1
2
3
Disclosure:
• GHG emission disclosures for Scopes
1 and 2—Scope 3 if material
• Climate governance
• Climate-related risks and opportunities
• Climate risk management
• Climate targets and goals
Controls: Subject to disclosure controls and procedures
Attestation: Phase-in to reasonable assurance over
Scopes 1 and 2 GHG emission disclosures
1
2
3

Climate-related comment letters
• In September 2021, a Sample Letter to Companies Regarding Climate Change Disclosures (“Dear Issuer” letter) was issued
• The sample comments are consistent with topics in the SEC’s 2010 interpretive guidance and focus on (1) description of the business, (2) legal
proceedings, (3) risk factors, and (4) MD&A
September 2021 Summer 2022
October – November 2021
DCF issues
company-specific
comments;
publishes “Dear
Issuer” letter.
Registrants respond to comments:
• Specific climate-related disclosures not material
to their business.
• Existing disclosures are appropriate.
• The users of – sustainability reports are a broader
group than users of financial statements.
DCF indicates that
comments are closed.
DCF issues company-specific
comments based on 2021
annual reports to companies
in the energy, transportation,
and manufacturing industries.
• DCF issues follow-up comment letters to
registrants requesting more detailed
materiality analysis as support.
• Registrants respond with detailed materiality
assessment; or provide expanded disclosures
in risk factors and MD&A.
November 2021 –February 2022
1 3
Key topics in the 2010 release:
To the extent material, discuss the indirect
consequences of climate-related regulation
or business trends…
International accords
Impact of legislation and regulation
Indirect consequences of regulation or
business trends
Physical impacts
Please advise us what consideration you
gave to providing the same type of
climate-related disclosure in your SEC
filings as you provided in your CSR report.
5
2 4
January – March 2022

Which area of the climate change rule will be the most
challenging to evaluate and/or implement?
• Timing of reporting requirement
• Determining emission disclosures disaggregated by greenhouse gas
(Scopes 1, 2, and 3)
• Introducing the appropriate level of climate governance

Key areas:
• Inflation
• Rising interest rates
• Geopolitical risks (including Russia-Ukraine war)
• Banking system and commercial real estate industry
• Supply chain disruption
• Cybersecurity
• Labor shortages
• COVID-19
• LIBOR transition
SEC staff encourages disclosure that:
• Addresses how management and the board of directors manage and
mitigate such risks.
• Discusses material known trends or uncertainties related to the risks.
• Evolves over time as more information is known.
SEC reporting: Emerging risk disclosure issues

Risk factors – Update hypothetical risk factors and
customize to discuss the existing worldwide and economic
impacts to the company
MD&A:
• Material known trends and uncertainties
• Direct and indirect impacts (e.g., from supply chain issues;
inflation, rising interest rate, volatility in currency; commodity,
energy, and financial markets)
• Early-warning disclosures for assets at risk of impairment
Other reporting implications (e.g., Form 8-K reporting
of impairments or significant dispositions, exit and
disposal activities)
SEC reporting: Emerging risk disclosure issues

NON-GAAP MEASURES AND METRICS

• Misleading and tailored accounting adjustments
− Add-back of normal recurring cash operating costs or of
material operating costs
− Adjusted revenue
− Adjusted gross profit/gross margin/contribution margin
• Prominence and balanced presentation
• Labeling, purpose, and use
• Use of multiple segment measures
Recent areas of focus

These C&DIs memorialize feedback the staff has previously provided to registrants and do not necessarily change the
staff’s previous position on certain non-GAAP adjustments (i.e., stock comp and restructuring)
C&DI 100.01 — Updated
Enhanced guidance to define what is
considered normal and recurring cash
operating expenses
C&DI 100.06 — New
Explains that no amount of disclosure
can make a measure that is concluded
to be misleading compliant with the
non-GAAP rules
Clarified that non-GAAP adjustments that change
GAAP recognition and measurement principles
would be considered individually tailored
accounting principles that may be misleading, and
added the following examples:
• Presenting non-GAAP revenue as net when
GAAP requires gross or vice versa
• Changing from accrual basis to cash basis for
revenue or expenses
C&DI 100.05 — New
Non-GAAP measures should be labeled as such, and
adjustments should be clearly labeled
Examples of misleading labels include labeling
a non-GAAP measure:
• Of contribution margin as net revenue.
• With a description similar to/the same as the
comparable GAAP measure.
• As pro forma that is not Article 11 compliant.
New and updated C&DIs on misleading measures
DCF Chief Accountant Lindsay McCord advised that there is no transition period when a conclusion is reached that a non-GAAP
measure or adjustment is misleading or otherwise not consistent with non-GAAP rules. The SEC staff expectation is that the registrant
will correct such presentation in the next filing.

102.10 was updated to include additional interpretive guidance on when a non-GAAP measure is more prominent than the corresponding GAAP measure.
• 102.10(a) highlights scope of what is covered by undue prominence. New examples were added that include:
− Presenting ratios where a non-GAAP measure is used in the numerator and/or denominator without presenting the equivalent GAAP ratio, or
− Presenting charts, tables, or graphs of non-GAAP measures without presenting the comparable GAAP measure.
• 102.10(b) clarifies that the non-GAAP measure reconciliation must start with the GAAP measure and reconcile to the non-GAAP measure.
• 102.10(c) added new guidance on what would constitute a non-GAAP income statement:
− A non-GAAP income statement would include all or most of the line items and subtotals found in a comparable GAAP income statement.
New and updated C&DIs on undue prominence
Regulation S-K requires that when a registrant presents a non-GAAP measure, it must present the most directly
comparable GAAP measure with equal or greater prominence

Examples of SEC comments on non-GAAP measures
Example: Prominence
Please revise your disclosure to ensure the
presentation of the most comparable GAAP
measures with equal or greater prominence to
your non-GAAP measures. For example, free
cash flow is disclosed without the most
comparable GAAP measure in the Highlight
section bullet points listed at the beginning of
your press release. Refer to Item 10(e)(1)(i)(A)
of Regulation S-K and Question 102.10 of the
Compliance and Disclosure Interpretations on
Non-GAAP Financial Measures.
Example: Nature of adjustments
Within your discussion of modified net
operating income, we note you have
indicated that some of your adjustments are
non-recurring. Given the nature of these
adjustments, it is not clear why they are
non-recurring. Please clarify and/or revise to
remove the reference to non-recurring from
your disclosure. Reference is made to
Question 102.03 of the Division’s
Compliance and Disclosure Interpretations
for Non-GAAP Financial Measures.
Example: Performance vs. Liquidity measures
We continue to question whether your disclosure of
non-GAAP diluted EPS is consistent with C&DI
102.05. In particular, you point out that the
reconciling items from GAAP net income to non-
GAAP net income will not require cash settlement.
By adjusting your net income to exclude only non-
cash items, it appears that you are attempting to
present a cash-based earnings measure.
Furthermore, we note that for the periods
presented in ... earnings releases, your non-GAAP
net income was within [X]% of your cash provided
by operating activities in your Statements of Cash
Flows for the same periods. In light of the above,
please explain how you determined that your non-
GAAP net income measure could not be used as a
liquidity measure. Alternatively, please remove non-
GAAP diluted EPS from your future earnings
releases.

What do you think the No. 1 area of SEC comment was
this year?
• MD&A
• Non-GAAP measures
• Revenue
• Segment reporting
• Climate change

SEC REVIEW PROCESS AND COMMENT LETTER TRENDS

• All issuers reviewed at least once every three years
• Not all reviews result in comment letters
• Comments are posted to EDGAR 20 days after completion of review
• Record levels of capital markets activity in 2020/2021
− Traditional IPOs
− SPAC IPOs and de-SPAC transactions
• Uptick in comment letters in 2023 after a slower IPO market in 2022
• For faster resolution, ensure filings and comment letter responses are
thorough and complete
− Clearly and directly address all issues raised
− Explain materiality of matters in question
SEC review process
SEC review process and comment letter trends

2.1
2.3 2.3
2.4
2.5
2019 2020 2021 2022 2023
Average number of topics per letter
826
691
523
649
1,200
2019 2020 2021 2022 2023
Number of comment letters
644
561
428 459
795
2019 2020 2021 2022 2023
Reviews with comment letters
50%
10%
39%
30%
11%
59%
Large accelerated Accelerated Nonaccelerated
Reviews by filing status
% of reviews that resulted in a comment letter % of Form 10-K filings
Note: Comment letter trend information was derived from data provided by Audit Analytics.

Note: Comment letter trend information was derived from data provided by Audit Analytics based on the percentage of all comment-letter-yielding Form 10-K and 10-Q reviews that
include a comment on topic.
Twelve months ended July 31, 2023
Topic
Percentage of
all reviews
Current-year rank
Change in rank
from prior year
MD&A 36% 1 —
• Results of operations 22%
• Liquidity 11%
• Critical accounting estimates 3%
Non-GAAP measures 33% 2 —
Segment reporting 12% 3 —
Revenue recognition 10% 4 —
Acquisitions, mergers, and business combinations 10% Tie – 5 5
Signatures, exhibits, and agreements 9% Tie - 5 —
Internal control over financial reporting 8% 7 —
Fair value 7% 8 (2)
Inventory and cost of sales 7% 9 —
Debt 7% 10 2

When was the last time your organization received an SEC
comment letter?
• Within the past 12 months
• 13–24 months ago
• More than 24 months ago

QUESTION AND ANSWER

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• Artificial intelligence
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Contact information
Jude Alaba
Managing Director
Deloitte & Touche LLP
jalaba@deloitte.com
Hero Alimchandani
Managing Director
halimchandani@deloitte.com
Chris Chiriatti
Managing Director
cchiriatti@deloitte.com
Zach Poncik
Senior Manager
zponcik@deloitte.com
Melanie Tuttle
Senior Manager
mtuttle@deloitte.com
Connect on LinkedIn
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Acronyms used in this presentation
CSR – Corporate social responsibility
DCF – Division of Corporation Finance
ESG – Environmental, social, and governance
FASB – Financial Accounting Standards Board
GAAP – Generally accepted accounting principles
GHG – Greenhouse gases
IFRS – International Financial Reporting Standards
IPO – Initial public offering
MD&A – Management’s discussion and analysis
SPAC – Special purpose acquisition company
SEC – US Securities and Exchange Commission

Resources
Roadmap: SEC Comment Letter Considerations, Including Industry Insights
Heads Up: SEC Adopts Final Rule on “Clawback” Policies
Heads Up: Comprehensive Analysis of the SEC’s Proposed Rule on Climate Disclosure Requirements
Heads Up: SEC Proposes New Requirements for Cybersecurity Disclosures
Heads Up: SEC Issues Final Rule Related to Pay Versus Performance
Roadmap Series
DART Mobile Application

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and Deloitte is not, by means of this presentation,
rendering accounting, business, financial,
investment, legal, tax, or other professional advice or
services. This presentation is not a substitute for
such professional advice or services, nor should it be
used as a basis for any decision or action that may
affect your business. Before making any decision or
taking any action that may affect your business, you
should consult a qualified professional adviser.
Deloitte shall not be responsible for any loss
sustained by any person who relies on this
presentation.

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