The trends we have observed with SEC comment letters over the past several years have continued. Through the first half of 2021 comment letters that reference 10-Ks, 10-Qs, or 8-Ks are on pace to decline by about 15% compared to 2020. These types of comment letters declined by 11% between 2019 and 2020, and by 35% between 2018 and 2019.
Some of the decline may be attributable to constraints on the SEC’s Division of Corporate Finance staff due to the increase in both IPOs and mergers & acquisitions in recent years. The Corp Fin staff must review the filings of public companies at least once every three years. However, the increase in IPOs and mergers & acquisitions can deflect the staff’s attention from public company filings.
Both the average number of letters per conversation and the average length of conversations have also declined. Though, these may increase as longer conversations that have more rounds of letters are made public.
While the most common issues mentioned in comment letters have remained virtually unchanged over the years, issues relating to legal matters entered the top ten during the first half of 2021; 3% of the comment letters during these six months cited legal matters. The increase in legal matters was attributable to questions concerning exclusive forum provisions.
Non-GAAP again surpassed management discussion and analysis as the most cited issue during the first half of 2021, while revenue recognition fell to fifth – its lowest level since at least 2018.
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