At the June 23, 2022 Accounting and SEC Update Weaver’s national professional practices team discussed relevant regulatory, accounting and reporting issues that public companies are facing. The following is a recap of the key discussion topics included in that webinar. View or download to the replay for further details and discussion:
Sign up for the Q3 session on September 22, 2022 for a discussion of relevant regulatory, accounting and reporting issues that public companies are facing. For questions or additional information, contact us.
SEC’s Releases Signal Major Shifts in the Year Ahead
Judging from the first quarter, Washington’s policymaking center of gravity in 2022 may be the SEC, which issued 16 proposed rules in the first three months of the year. That may only be the beginning, since last fall, the SEC released its list of upcoming new rules with over 50 separate items on the list. Key areas that Chairman Gensler has proposed rules on include:
- Cybersecurity risk management,
- Loaning and borrowing of securities,
- Reporting of short positions by investment managers,
- Shortening the settlement cycle for stock trading,
- Pay versus performance disclosures for corporate executives,
- Enhanced disclosure around special purpose acquisition companies (SPACs), and
- Enhanced disclosure around insider trading and corporate buybacks.
While the proposed rules on climate-related disclosures and cybersecurity have garnered plenty of headlines and attention, the Commission has also proposed significant rule changes in other areas that, if adopted, will impact public companies.
- Whistleblower Program Rules
- Special Purpose Acquisition Companies (SPACs), Shell Companies and Projections
The rapid increase over the past two years in the number of IPOs by SPACs has heightened investor protection concerns about various aspects of the SPAC and de-SPAC-ing transactions, including the use of projections, particularly with respect to business combination transactions in which projections about private operating companies may lack a reasonable basis.
- Cybersecurity Risk Management, Reporting, And Recordkeeping Requirements For Investment Advisers And Funds
- Cybersecurity Risk Management, Strategy, Governance and Incident Disclosure
- Enhancement and Standards for Climate-Related Disclosures for Investors
ESG Disclosures for Investment Advisers and Investment Companies
Many registered funds and investment advisers to institutional and retail clients consider environmental, social, and governance (ESG) factors in their investment strategies. Investors looking to participate in ESG investing face a lack of consistent, comparable, and reliable information among investment products and advisers that claim to consider one or more ESG factors. This can create unnecessary risks.
On May 25, 2022, the SEC proposed rules and form amendments that would enhance disclosure by:
- Requiring additional specific disclosures regarding ESG strategies in fund prospectuses, annual reports, and adviser brochures;
- Implementing a layered, tabular disclosure approach for ESG funds to allow investors to compare ESG funds at a glance; and
- Generally requiring certain environmentally focused funds to disclose the greenhouse gas (GHG) emissions associated with their portfolio investments.
Oversight and Governance of Climate-Related Risks
Disclosure topics include:
- Climate-related risks, including oversight and governance and the process for identifying, assessing and managing climate related risks;
- Information about emissions: direct greenhouse gas (GHG) emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2), separately disclosed;
- Guidance on how to present related disclosures under Regulations S-K and S-X, and phase-in periods for incorporating these disclosures, which, based on the company’s filing status, would range from FY 2023 for large accelerated filers to FY 2025 for SRCs ; and
- New attestation requirements for accelerated and large accelerated filers covering, at a minimum, Scope 1 and Scope 2 emission disclosures, and phase-in periods for obtaining these attestations.
Cybersecurity Incident Reporting
This proposal would require additional periodic disclosures regarding, among other things:
- A registrant’s policies and procedures to identify and manage cybersecurity risks;
- Management’s role in implementing cybersecurity policies and procedures;
- Board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk;
- Updates about previously reported material cybersecurity incidents
Filer status assessment
- June 30 is the measurement date for calendar year-end companies. It is critical to properly evaluate your company’s status, since it affects the timing of filings and required content.
Addressing control deficiencies
- Now is the time to be addressing existing control deficiencies to allow sufficient time for controls to be in place and to refine remediation actions. Failure to do so could result in elevated deficiencies.
Market volatility impact on valuations
- Volatility in the market may have material impacts on valuation matters including valuation of business and acquired assets, inputs in determining grant date fair value of share based compensation awards, and other matters.
As the comment periods for these initiatives close and new SEC proposals are introduced, there will certainly be more to cover in the months ahead. Join Weaver’s national professional practices team for its next discussion of accounting topics and the SEC.
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