SEC Comment Letters: A Nine Year Trend

A review of SEC comment letters on forms 10-K, 10-Q, and 8-K shows that the trend of comment letters has continued to decline. Between 2018 and 2019, the number of comment letters fell by roughly 30%; similarly, between 2017 and 2018, there was a 32% decline.

Much of the decline was due to a government shutdown that persisted through the first 25 days of 2019. During that time, SEC staff were unable to conduct any reviews of public filings. As a result, the number of comment letters in Q1 2019 was 65% lower than in Q1 2018. For comparison purposes – looking at how many letters could have been filed during the 2019 shutdown period – there were over 300 comment letters dated in that period the previous year (between December 21, 2017 and January 25, 2018).

Most of the decrease noted in 2019 was related to comments on forms 10-K and 10-Q. Comments on 8-Ks were similar to 2018. 

The number of conversations has also declined – down to 552 in 2019 – and conversations have continued to become shorter since 2010.

The average number of letters per conversation dropped slightly, from an average of 3.7 letters per conversation in 2018 to 3.6 in 2019. From a practical perspective, an average of 3.6 letters per conversation means that most reviews are resolved after one round of comments. Additionally, the average number of days to complete a conversation fell from 48.6 days in 2018 to 41.1 days in 2019. Though, this could change if a particularly long conversation is filed.

Based on currently disclosed SEC comment letter conversations beginning in 2019, the longest conversation spanned 17 letters over 281 days, with 6 extension of time requests from the addressed company. The SEC requested more information from the registrant regarding revenue recognition for performance obligations, capitalized costs related to fulfilling customer contracts, and clarification on contract assets and contract liabilities under ASC 606 – Revenue from Contracts with Customers.

Considering the SEC does not disseminate comment letters until it has completed its review, it is possible that additional comment letter conversations began in 2019 that have not yet been resolved and, therefore, are not yet available to the public. With ASC 842 – Leases becoming effective in 2019 for companies with calendar year-ends, it will be interesting to see the trends in comments issued related to the adoption of the new standard.

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