The following outlines each of the SEC’s current comment letter focus areas, with a brief explanation of why they matter in today’s environment. These summaries highlight both the long-standing topics that remain consistent year after year and the emerging issues gaining regulatory attention.
Core, Recurring Topics
Management’s Discussion & Analysis: The SEC frequently comments on MD&A when companies provide overly generic narratives or fail to clearly explain the drivers behind period-over-period changes. The Commission expects companies to offer meaningful, decision-useful information regarding liquidity, capital resources, and known trends or uncertainties that could impact results, rather than repeating financial statement data.
Non-GAAP Measures: Non-GAAP metrics remain a high-priority review area, with the SEC focusing on whether they are misleading, given greater prominence than GAAP measures, or lack adequate reconciliation. Companies should ensure these measures are calculated consistently, labeled clearly, and not adjusted in ways that obscure true performance.
Segment Reporting: Comments often arise when companies provide insufficient detail about how operating segments are identified and managed. The SEC expects disclosures to align with internal reporting to the chief operating decision maker (CODM) and to adequately explain changes in the business, segment structure or reporting.
Revenue Recognition: The SEC continues to question revenue recognition policies, particularly in areas involving multiple performance obligations, variable consideration, or significant judgment. Clear disclosure of timing, methodology, and critical estimates is essential to ensure compliance with ASC 606 and investor transparency.
Goodwill and Other Intangibles: The SEC closely reviews the timing and support for goodwill and intangible asset impairment testing. Companies are expected to clearly disclose the circumstances triggering impairment tests, valuation methods used, and any key assumptions that could lead to future write-downs. There has been a substantial increase in comments, particularly those requiring expanded “early warning” of potential impairment given the increased complexity in the macro-economic and US fiscal policy environments.
Business Combinations: ASC 805 requires various disclosures for individually material business combinations and certain disclosures for individually immaterial business combinations that are material in the aggregate. Comment letters have requested companies to expand their disclosures related to business combinations, including the inclusion of pro-forma information required by ASC 805 or to explain why it was not provided. Comments related to the conclusion that the acquisition met or did not meet the definition of a business, the values assigned, and the significant estimates and assumptions utilized have also been issued.
Macro-Driven Trends
Inflation: The SEC is seeking more specific discussion of inflation’s impact on costs, pricing, and margins. Vague or boilerplate statements are drawing scrutiny, with regulators expecting companies to quantify the impact where possible and describe mitigation strategies.
Interest Rates: With significant rate fluctuations in recent years, the SEC wants clearer disclosure of how interest rate changes affect borrowing costs, investment income, and overall liquidity. Companies should address both recent impacts and potential future sensitivity.
Risk Disclosures: Disclosed risk factors are being cited for being overly generic. The SEC expects risks to be company-specific, updated to reflect current market conditions and placed in context with the company’s strategy and operations.
Internal Controls & Error Disclosures
ICFR: The SEC remains focused on timely identification and disclosure of material weaknesses, as well as the remediation steps taken. When a company discloses an immaterial correction of an error and does not report the presence of a material weakness, the SEC may request its analysis of the impact in internal control over financial reporting and evaluate the conclusion reached by management.
Emerging Focus Areas
AI & Tech Claims: With the rise of AI adoption, the SEC is scrutinizing disclosures about AI capabilities to ensure they are accurate and not misleading. Companies should avoid exaggerated claims, provide clear descriptions of AI’s role in their operations and address related risks.
Cybersecurity: The SEC’s recent rulemaking underscores the importance of timely and detailed disclosure of cybersecurity risks and incidents. Companies are expected to describe governance structures, incident response protocols and any material impacts from breaches.