Latest / PwC's accounting podcast / SEC now: MD&A 2025 comment letter trends

Transcript

SEC now: MD&A 2025 comment letter trends · PwC's accounting podcast

0:00
SPEAKER_00: Thought Leadership from PWC's National Office.
0:06
SPEAKER_01: Hello, and welcome to PWC's Accounting Podcast.
0:10
SPEAKER_01: I'm Heather Horn.
0:12
SPEAKER_01: Today we're continuing our SEC focused series with a look at another top comment letter area in 2025, management's discussion and analysis, or more familiarly known as MDNA.
0:24
SPEAKER_01: Investors rely on MDNA to understand how management views the company's performance, future trends, uncertainties, and more.
0:32
SPEAKER_01: So it's no surprise that MDNA continues to be a frequent area of FCC staff focus.
0:41
SPEAKER_01: Joining us for today's episode, I'm happy to welcome Lindsay McCord and Ryan Spencer, both partners in PWC's National Office who work extensively on this topic.
0:51
SPEAKER_01: And for those of you following along with the series, our guest host once again today is Kyle Moffitt, PWC's National Office Professional Practice Leader.
0:59
SPEAKER_01: Kyle and Lindsay both spent nearly two decades at the SEC.
1:03
SPEAKER_01: So also bring that firsthand perspective to this conversation.
1:07
SPEAKER_01: Let's go ahead and get today's episode started.
1:10
SPEAKER_04: Ryan, Lindsay, thanks for joining me for this next episode on SEC Comment Letter Trends, where we'll dive into management's discussion and analysis, otherwise known as MDNA.
1:21
SPEAKER_04: I know the two of you spend a lot of time with our review teams and clients focused on comment letters from the staff.
1:27
SPEAKER_04: And MDNA continues to rank in the top five of SEC comment letter trends.
1:31
SPEAKER_04: Lindsay, can you start us off just providing an overview and some of your perspectives on the overall trends and frequency of SEC comments related to MDNA?
1:40
SPEAKER_03: Sure, Kyle.
1:41
SPEAKER_03: And again, thank you for having me.
1:44
SPEAKER_03: So over the rolling 12 months into September 30th, 2025, we've continued to see MDNA SEC comments be high volume, number two in the top five overall, not based necessarily on sector.
1:59
SPEAKER_03: Sectors tend to see the same where it's number two, maybe a few sectors, it's a number three area.
2:04
SPEAKER_03: But I wouldn't say that this is a surprise or a change from anything else.
2:08
SPEAKER_03: This is something that we've seen a high volume of comments for several years now.
2:14
SPEAKER_03: Um, and it's something that Kyle, both you and I are aware that it's not only something that the SEC accountants review, but you have SEC attorneys reviewing.
2:23
SPEAKER_03: So that could also play into why you might have it as a higher comment volume.
2:27
SPEAKER_03: Um, but again, kind of going to the data piece for the last rolling 12 months.
2:31
SPEAKER_03: And even, you know, when I just isolate and think of the SEC comment letters that were issued in 2025 here, which we know there's a lag when SEC comment letters are issued.
2:43
SPEAKER_03: Um, the SEC staff reviews a filing.
2:45
SPEAKER_03: Then at once they close out that filing review, it's normally on average 20 business days until you see the comment letter.
2:52
SPEAKER_03: So there's always that lag.
2:53
SPEAKER_03: So things released in 2025 might have been issued in 2024, but we've overall seen an increase in MDA comments as a percentage of total comments and just year over year the number of MDNA comments, which I find that interesting.
3:11
SPEAKER_03: And I was kind of trying to sparse the data to say what is driving that.
3:16
SPEAKER_03: And some of the things that I noticed, we have a lot of crypto companies that possibly um were reviewed in prior years, maybe 2023.
3:26
SPEAKER_03: And those comment letters weren't released until this year, and they had MDNA comments.
3:31
SPEAKER_03: Um, and you had other types of sectors and companies that had a delay in the release of letters.
3:38
SPEAKER_03: So that could be skewing the population when we say the numbers, the volumes up in MDNA, because really you're not thinking that that relates to 2023 10Ks or even 2022 10Ks.
3:51
SPEAKER_03: Um, but then also another thing that I found interesting was that there was a shift in other topics where letters went down.
3:59
SPEAKER_03: So when in the total number of letters on that rolling 12 months, um, the denominator in your calculation went down too.
4:07
SPEAKER_03: So that's why, again, mDNA, I wouldn't say that I feel like it's a trend that it's up, even though the number, the data is telling us it is.
4:15
SPEAKER_03: But again, looking at the information, it seems like there might be other factors playing into that.
4:20
SPEAKER_03: And it's probably actually flat when you exclude those factors year over year.
4:25
SPEAKER_04: Yeah, no, I think I think that's interesting that you point that out.
4:28
SPEAKER_04: The timing obviously does matter, right?
4:30
SPEAKER_04: When they when they release these um reviews that the the comment letters.
4:33
SPEAKER_04: I think, I think you'd expect, I guess, moving forward, you'd probably expect maybe to see a a decline um potentially um because of a of a new focus from this, a new administration.
4:46
SPEAKER_04: I think it'll be interesting to see how it plays into, you know, when you think about the shutdown, right?
4:51
SPEAKER_04: It was a lengthy, lengthy shutdown.
4:53
SPEAKER_04: And they're gonna be really fast and furious trying to get through all the required Sarmi's Auxley reviews.
4:59
SPEAKER_04: Does that then mean that we see fewer comments on things like mDNA?
5:04
SPEAKER_04: Because they're focused, they got to focus on getting the financial statement reviews done for them to meet the Sarvey's Oxley mandate.
5:10
SPEAKER_04: So I think it'll be interesting to monitor this space.
5:13
SPEAKER_04: I think we may be coming back to next year and saying, hey, you know, maybe revisiting this, this conversation.
5:19
SPEAKER_04: And I think it segues nicely into diving a little bit deeper into the specific comments that have been issued.
5:26
SPEAKER_04: And Ryan, you know, I know you were on this this podcast last year to discuss the topic.
5:30
SPEAKER_04: Are we seeing anything new in terms of kind of the specific areas that that the staff's focused on in MDNA?
5:36
SPEAKER_05: Yeah, Kyle, I'll start high-level with just the various sections of MDNA and it it the rest of the discussion will kind of follow how the rule's organized.
5:44
SPEAKER_05: So the actual rule is organized, I like to say, in kind of three buckets.
5:48
SPEAKER_05: You have um required disclosures in MDNA around the results of operations, you have liquidity and capital resources, as well as critical accounting estimates, and we'll we'll talk about all of those areas.
6:00
SPEAKER_05: But just looking at those three areas, Kyle, the one where we see the most comments, and this is this is fairly typical and it's been this way for a while, is the results of operations section.
6:12
SPEAKER_05: Um that by far and away outnumbers the other two areas that I mentioned.
6:17
SPEAKER_05: In fact, you know, results of operations is about, I'll say about two-thirds, and that's about what it was last year.
6:22
SPEAKER_05: So we aren't really seeing any shift there.
6:25
SPEAKER_05: Um we'll talk a little bit about some of the specifics in each of those areas and where there might be some some shifts or some some future considerations.
6:35
SPEAKER_05: But um, but overall, that that's that's pretty pretty consistent.
6:40
SPEAKER_04: Yeah, I'd say I think it's it's interesting, right?
6:42
SPEAKER_04: I think, you know, obviously when you talking about those buckets, right?
6:47
SPEAKER_04: I think the the first thing that people really do think about is results of operations.
6:50
SPEAKER_04: I know, you know, Lindsay, when you used to review file is probably was the first first area of focus.
6:55
SPEAKER_04: You're looking at a financial institution versus some other companies in different sectors, though they're obviously the focus may change.
7:02
SPEAKER_04: But as as you think about, you know, as we're thinking, Ryan, about, you know, some of the complexities in that space, like what's leading to more comments on areas like results of operations, or is it just the fact that people aren't paying attention or they're just kind of going in mere bare bones with, hey, there's an increase due to this or that, and not really getting into the details?
7:25
SPEAKER_04: There may be some things that are offsetting.
7:27
SPEAKER_04: Um I'm not doing air quotes, but I'm kind of showing up and down uh different impacts on different line items and and and positive and negative impacts.
7:35
SPEAKER_04: What's your reaction?
7:36
SPEAKER_05: Um well, results of operations, it gets the most comments.
7:40
SPEAKER_05: I I always like to look at it as just because there's a lot more to unpack there.
7:44
SPEAKER_05: There's just a lot more to discuss.
7:46
SPEAKER_05: You've got required disclosures at the consolidated level.
7:49
SPEAKER_05: The rule also requires it to be, I'll say, disaggregated to the extent that that's material information, disaggregated by segment or geographic area or whatever cut makes sense, but usually it's by by segment.
8:02
SPEAKER_05: So you have those those types of um those those types of disclosures.
8:07
SPEAKER_05: If you're doing an interim period and you have you have year-to-date and quarter-to-date periods to discuss, so that's additional disclosures in the results of operations.
8:15
SPEAKER_05: And then the other thing I I think that that um that causes a a fair amount of focus in this area is that there's a lot of this the disclosure that's forward-looking in nature.
8:26
SPEAKER_05: Um we'll talk a little bit more about that in in detail, but um requires companies to look closely at some of the trends and uncertainties and talk a little bit about what they are what they are observing and the and what might impact um the future.
8:42
SPEAKER_05: In other words, what might cause the future results perhaps to differ from the current results.
8:47
SPEAKER_05: Um so when I look at that, plus with all of that comes a lot of subjectivity and judgment in finding the right level of detail in the disclosure, um, it's an area that just naturally generates the the higher level of comments.
9:01
SPEAKER_05: There's there's also just a lot of source material for the SEC to to look at when they when they're evaluating and reviewing the MDNA.
9:09
SPEAKER_04: Aaron Powell Talk talk a little bit about that source material.
9:12
SPEAKER_04: What are we seeing the staff focused on?
9:14
SPEAKER_05: Aaron Ross Powell Well, when reviewing the MDNA for compliance, the the staff, it's it's fairly obvious through the through the comments that during a review, they'll look at the company's other parts of the document as well as other publicly available information.
9:29
SPEAKER_05: So think about quarterly press releases, earnings call materials, investor day materials, all of that information, which generally is publicly available, uh, not to mention the other information in the filing accompanying the MDNA, like the risk factor section, business section, and um you know other parts of the filing.
9:51
SPEAKER_05: So able to triangulate and get a better picture of what's going on or what's the company's story that they're telling externally, and how does that match up against the MDNA when talking about the results for a particular period?
10:04
SPEAKER_05: Yeah.
10:04
SPEAKER_04: So what are some of the common themes that we're seeing at least with respect to results of operations?
10:11
SPEAKER_05: Yeah.
10:11
SPEAKER_05: So the most frequent comment is around what I like to call quantification of changes in results.
10:20
SPEAKER_05: So uh most frequently the staff is requesting or asking companies to indicate how they've considered disclosing a more detailed analysis of the drivers of variances, including offsetting factors.
10:33
SPEAKER_05: So for example, if your SGNA expenses went up by a certain amount and you're just and you're describing qualitatively that there were two factors, one of them offsetting that led to that, they there they will often comment to provide information or quantitative information about each of those offsetting factors.
10:53
SPEAKER_05: And they'll do that for a variety of line items.
10:56
SPEAKER_05: It's not always revenue, for example.
10:59
SPEAKER_05: They will focus on that in terms of gross margin, um SGNA, uh revenue, um, all various line items.
11:07
SPEAKER_02: Research and development.
11:08
SPEAKER_02: I notice a lot of comments in that area too.
11:10
SPEAKER_05: Yeah, that's that's increased as well.
11:14
SPEAKER_05: So there's I I mentioned revenue.
11:16
SPEAKER_05: There's some pretty explicit guidance about revenue and uh how revenue fluctuations might be impacted by the pricing changes, new products, um, volume changes as well.
11:30
SPEAKER_05: But really that that concept does does really apply to all the line items.
11:35
SPEAKER_05: So that quantification is a comment that we see that's really the largest, the largest volume there.
11:41
SPEAKER_05: We also see um and when talking about that too, there's we also see impact of acquisitions.
11:46
SPEAKER_05: So if a company has an acquisition or a divestiture, they're also looking for potential quantification of that.
11:52
SPEAKER_05: Um and and that just that's just another driver of the quantification comments.
11:57
SPEAKER_04: Aaron Powell Are we seeing people or companies try to provide pro forma results to show the impact, let's say, of an acquisition?
12:06
SPEAKER_04: Like are they or do they try to just kind of dance around it and provide enough disclosure?
12:11
SPEAKER_04: I mean, obviously, you know, there is the ability to provide some sort of pro-forma discussion, right, in MDNA.
12:18
SPEAKER_05: But are we seeing that a lot or is it for the most part where it's material or where when a comment is given to do that, we'll usually see it just embedded in the overall discussion of the fluctuation.
12:29
SPEAKER_05: I think some companies may disclose changes in line items on an organic basis, right?
12:34
SPEAKER_05: Which is one way to accomplish that.
12:36
SPEAKER_05: But we do from time to time see companies that do take advantage of the ability to provide supplemental pro forma information to give to give readers the the the effect of what it would look like if if this business had been say acquired earlier, right?
12:50
SPEAKER_05: But it in those cases it it's pretty clear that always needs to be supplemental.
12:54
SPEAKER_05: But we do we do see.
12:55
SPEAKER_02: And comply with Article 11.
12:56
SPEAKER_02: Yeah, point eight percent.
12:58
SPEAKER_05: That's right.
12:58
SPEAKER_05: And we s and we s we see that from time to time, but it's not it's not something I'd say is routine.
13:03
SPEAKER_03: And when we see a combined, let's say MDNA or com instead of truly pro forma under Article 11, but someone's trying to combine businesses, maybe they had a bankruptcy and it's a restart or whatever, we'll see the SEC staff sometimes comment about that if they're just providing that without the real MDNA, the historical results.
13:22
SPEAKER_03: Um, I know I when I was perusing through the comments, I did see one of those this year.
13:26
SPEAKER_04: It's not something you see frequently, but there was a to your point, right, about providing it as a supplement.
13:31
SPEAKER_04: So I th I'm glad you highlighted that, right?
13:33
SPEAKER_04: Because this is in addition to the historical, you have to discuss your historical results.
13:39
SPEAKER_04: What if it's presented in your financial statements?
13:41
SPEAKER_04: That's that's helpful.
13:42
SPEAKER_04: Anything else?
13:43
SPEAKER_04: I one thing, one thing, Ryan, that that that I I know you you wanted to mention um is really something that that popped in my head um earlier when you were talking, and it was uh surrounding the just the the all the information that's in investor decks, presentations, and when you think about the staff, like they're gonna look at that.
14:03
SPEAKER_04: They start to hone in on, oh, there's performance metrics, or there's information on the earnings release.
14:07
SPEAKER_04: How are these key performance indicators being discussed or described in MDNA?
14:12
SPEAKER_04: Are we seeing a lot of comments on that with respect to results of operations today?
14:15
SPEAKER_05: Aaron Powell We are.
14:15
SPEAKER_05: That's a fairly typical comment where they will notice that that in press releases or investor decks, companies will talk about certain key metrics.
14:24
SPEAKER_05: They will provide it in a comparative format.
14:28
SPEAKER_05: They'll perhaps give some additional color about how it's driving driving the results.
14:32
SPEAKER_05: But then say you look to the MDNA and those those metrics are not are not there, they're not disclosed.
14:40
SPEAKER_05: And so the the staff will issue comments asking companies essentially to reconcile or you know, please can please tell us how you considered whether or not those are that's material information that's re required to be disclosed, because there is guidance out there that would indicate if if it's material to an understanding of the business, yeah, and it would be material to investors, then there are key metrics that they would say are de facto almost required to be disclosed.
15:06
SPEAKER_03: And that's commission guidance.
15:08
SPEAKER_03: That's not staff guidance at the SEC, and commission guidance has a different level to it.
15:12
SPEAKER_03: It is actually the commission speaking of their interpretation of MDNA for the performance metrics.
15:17
SPEAKER_03: And I know I this weekend I actually, as part of my time cooking, I listened to our non-gap podcasts, um, which was great.
15:26
SPEAKER_03: So plug for that.
15:27
SPEAKER_03: But they talked about key performance metrics versus non-gap measures.
15:31
SPEAKER_03: So I encourage people to go to that because there is this requirement or this commission guidance about performance metrics, but that's different than non-gap.
15:40
SPEAKER_04: Yeah.
15:41
SPEAKER_04: So Lin, Lindsay, I want to stick stick with you for for a minute here.
15:44
SPEAKER_04: And and really it's it's largely due to the fact you were previously at the SEC very recently.
15:51
SPEAKER_04: Um, you have spent time looking and seeing and probably working on dear issuer letters that they call them on various topics.
16:00
SPEAKER_04: So, and so I I think broadly about just any of the macroeconomic condition, geopolitical events, things going on around the world.
16:07
SPEAKER_04: And you think today, right, about those things in it impacting the operations, tariffs, inflation, interest rates.
16:16
SPEAKER_04: Can you talk a little bit about, you know, where within MDNA might we see a discussion of these events, obviously in results, right?
16:23
SPEAKER_04: But then also where else?
16:25
SPEAKER_03: Yes.
16:25
SPEAKER_03: Um, so maybe let's level set on what we saw from companies disclosure and mDNA.
16:32
SPEAKER_03: What were the events or macro, or I always say it's the current events or events outside the control of the company is the key here.
16:42
SPEAKER_03: Um, and so we saw companies talk about interest rates, the tightening of credit conditions, inflation, supply chain disruptions and logistics, tight labor markets and wage talent pressures, ongoing geopolitical tensions, the tariffs and the changes throughout the year on trade policy in the US and other jurisdictions, natural disasters, um, foreign currency volatility and cross-border exposures, and tax and regulatory changes.
17:10
SPEAKER_03: That's a lot of events.
17:13
SPEAKER_03: And so when you're a company and you're trying to approach your mDNA, you have to consider all of those if it's applicable to your business.
17:22
SPEAKER_03: And so, what I think the important thinking thing to kind of break it down of when you have this laundry list of major events that you have to consider.
17:31
SPEAKER_03: And I'm going to draft my 2025-10K and do my MDNA.
17:35
SPEAKER_03: What do I spend the most time and effort on?
17:37
SPEAKER_03: And what do I need to disclose?
17:38
SPEAKER_03: I would break down MDNA by first is which of those items actually impacted your historical results and kind of put those on one side that you need to assess.
17:50
SPEAKER_03: And then which of those items could impact your business?
17:55
SPEAKER_03: And the reason why I kind of separate it that way is we know from what Ryan described, you have to talk about your results of operation, your historical periods.
18:02
SPEAKER_03: But MDNA also has the concept of trends and uncertainties and the concept of, you know, what could impact?
18:10
SPEAKER_03: What could make my historical results no longer be reflective of what it's going to look like in the future?
18:16
SPEAKER_03: Um, and a few key things in the disclosure requirements for mDNA, when you think of these events, once you kind of bucketed it to say these are the events that did impact historical or may impact in the future, then you go to, well, which of these do I actually have to talk about?
18:30
SPEAKER_03: And so let's say you narrow it down to like three items.
18:33
SPEAKER_03: Well, now you have to think, are these items material?
18:36
SPEAKER_03: Obviously, you know about them because that's a key part of MDNA, is that it's known to management the event because you wouldn't have been able to list them out if you didn't know about them.
18:45
SPEAKER_03: Um, but then also, is it reasonably likely, based on management's assessment, that that event would have a material impact on future operations?
18:55
SPEAKER_03: So when the staff revised MDNA in 2020, there was a few additional words put in to mDNA on um trends and uncertainties.
19:06
SPEAKER_03: And it was the inclusion of the word material in multiple places, but also the concept of it's it was always there, but I think there was more discussion in the release in 2020 about the reasonably likely based on management's assessment.
19:22
SPEAKER_03: And that's a lot of judgment.
19:25
SPEAKER_03: So management has to determine if something's material.
19:27
SPEAKER_03: Is the impact expected to be material?
19:30
SPEAKER_03: Do I know about the event?
19:32
SPEAKER_03: And then is it reasonably likely?
19:34
SPEAKER_03: So there's a lot of judgment here from management on these geopolitical, macroeconomic, global, sector-related events that they it's not within their control, but then they have to turn around and make several judgments of what to disclose.
19:48
SPEAKER_03: Um, so I would just highlight that it's important for companies that probably have some robust policies and procedures here.
19:56
SPEAKER_03: You know, you have your disclosure controls and procedures related to mDNA to kind of identify the events they, as we approach your end, continuing to monitor all these events and how they may impact your business, because we all know things change quickly.
20:12
SPEAKER_03: We've definitely seen it.
20:14
SPEAKER_03: Um, and a place to kind of look to for some maybe guidance of how would I address this in mDNA at any of these events or forward looking, like I think it's going to maybe be reasonably likely to impact in the future.
20:28
SPEAKER_03: Um, the SEC recently tagged on their uh website all the COVID-related guidance as no longer applicable.
20:38
SPEAKER_03: And but they did not remove the guidance.
20:41
SPEAKER_03: So you're talking about Kyle, the deer issuer letter.
20:44
SPEAKER_03: So Corfin had issued some disclosure topics, disclosure guidance topics number nine and nine A, specifically related to COVID.
20:52
SPEAKER_03: Well, for years after that, the staff and preparers looked to that guidance as remove the word pandemic, remove the word COVID, and insert anything else.
21:02
SPEAKER_04: Yeah.
21:03
SPEAKER_03: And so when I got, when I heard that the SEC was removing this guidance, you know, I personally was worried because I do think it's a good playbook for companies to use and see what would my comments be, what should I be thinking about.
21:14
SPEAKER_03: Um, so I was pleasantly surprised and happy to see that while they tagged it as no longer applicable or relevant, it's it's relevant.
21:21
SPEAKER_03: They re but they left it on the website.
21:23
SPEAKER_03: So we all still have that.
21:25
SPEAKER_03: I think it's relative um for companies to think about as it relates to that.
21:29
SPEAKER_03: Some other things I would just highlight quickly is um I know there was a lot of talk of tariffs this year.
21:36
SPEAKER_03: We did see a few comments asking about more mDNA disclosure on tariffs, but maybe not as much as you would think for the amount of attention it received.
21:45
SPEAKER_03: Um, I think companies probably did a good job of highlighting that it was going to be a risk possibly to future operations.
21:52
SPEAKER_03: The other thing is that it's also something that maybe affected certain sectors in different ways, you know.
22:00
SPEAKER_03: As this continues with inflationary pressures, as um interest rates we're seeing their decline.
22:06
SPEAKER_03: So I think all of these are things that companies need to be considering at your end of how it's going to impact their business, making sure that they're not using boilerplate mD and a disclosures as it relates to trends and uncertainties.
22:19
SPEAKER_03: They have updated this information.
22:22
SPEAKER_03: Another thing is the SEC staff, you know, has really criticized companies for saying that it's a hypothetical risk to their business for one of these events when really the event has occurred or it has impacted their business.
22:37
SPEAKER_03: So that's another reminder.
22:39
SPEAKER_05: Just on that point, I mean, when I'm looking at filings and whether it's a risk factors or an MDNA, oftentimes when I'm reading it and I see things that'll say, you know, we may be adversely affected or we may be impacted.
22:52
SPEAKER_05: I I I will often just circle the the May and just make sure as a kind of as a service that that that was intentional language and that they that they have not actually already been adversely impacted.
23:05
SPEAKER_05: Now maybe it's not materially adversely affected, but um that that's something I see pop up quite a bit.
23:12
SPEAKER_05: And I think that is the focus of of what Lindsay's talking about in some of the comments in that area.
23:16
SPEAKER_04: Yeah, I think as as I'm kind of as I'm unpacking kind of everything that that you just highlighted, Lindsay, it's it's the thing that I'm thinking in my mind is look, you know, changes in in interest rates, right?
23:28
SPEAKER_04: Like, okay, there's a decline, right?
23:31
SPEAKER_04: Well, there has an impact, a lot of other impacts, right?
23:33
SPEAKER_04: When you think about discount rates being like there's a lot to think about when you're looking at disclosures and other sections of the MDNA, critical accounting estimates, right?
23:43
SPEAKER_04: And you're thinking about some of the assumptions, what you've used in models, growth rates, you know, the impacts of tariffs on growth rates, and you know, so there's a lot of things that to that for companies to think about.
23:54
SPEAKER_04: And it kind of leads me to the next topic, um, which really is the liquidity.
24:00
SPEAKER_04: Um, and and Ryan, uh as as people think about liquidity and capital resources, um, you know, obviously the environment, you know, there are companies that that may be struggling in this environment.
24:12
SPEAKER_04: Um, what have you seen there?
24:14
SPEAKER_04: What kinds of comments are we seeing?
24:16
SPEAKER_05: So the liquidity and capital resources section requires disclosure of of the material uncertainties surrounding a company's liquidity, um, really fundamentally, what what's your ability to meet your liquidity needs?
24:28
SPEAKER_05: And most of the comments or a lot of the comments I see in this area are really because perhaps the SEC views the disclosure to be very short, short-term focused as opposed to long-term focused.
24:40
SPEAKER_05: So there's there's a fair amount of comments that remind registrants that the discussion is supposed to be appropriately balanced between the current um, the short, the short-term needs as well as those on a long-term basis.
24:54
SPEAKER_05: We I often see comments in in this area when there have been changes in the company's capital structure, so a new facility, or they'll note that a potentially a revolving facility was uh maybe maybe terminated and not replaced, right?
25:10
SPEAKER_05: You'll you'll see comments or at least focus in that area to say, hey, how how does that work when you when we look at your cash flow from operations?
25:17
SPEAKER_05: How are you balancing that on a short-term and a long-term basis?
25:21
SPEAKER_05: So most a lot of the comments are in that area.
25:24
SPEAKER_05: If if there's debt coming due in a near term, especially when we were dealing with an increasing interest rate environment and the company's ability to refinance was was maybe curtailed to some degree, um, or at least needed to be a little bit more um focused on how to how to approach that.
25:43
SPEAKER_05: Uh, we we did see uh a number of comments asking companies to to explain a little better how they are gonna deal or what what their prospects are for refinancing, or do they plan to finance that with cash from from operations?
25:57
SPEAKER_05: And and obviously that's gonna that's gonna vary depending on what your cash flow from operations has has been recently.
26:03
SPEAKER_05: Um and then we we do see in this area as well on the cash flow statement, we'll see comments from the SEC that are asking companies to be a little bit more specific as to why cash flow from operations may have fluctuated from one period to another.
26:19
SPEAKER_05: They note um in the comments often, and we talked about this last year, it's continuing theme, that um they'll say you're we don't merely just recite what's clearly evident from the indirect method of cash flow presentation.
26:33
SPEAKER_05: In other words, the fact that your depreciation was higher than what it was last year isn't a reason why your cash flow from operations is is has changed from period to period.
26:44
SPEAKER_05: So they'll ask companies to be a little bit more direct in describing why it may have fluctuated, which presents a little bit of an interesting challenge because most companies do prepare and disclose their cash flow statements on an indirect basis.
26:58
SPEAKER_04: Almost all companies, right?
26:59
SPEAKER_04: Yeah, there's maybe one that does.
27:00
SPEAKER_04: Right.
27:01
SPEAKER_05: So companies have to be a little um they have to be a little crafty in terms of how they get to that.
27:06
SPEAKER_04: So yeah, yeah.
27:08
SPEAKER_04: So that's that's I'm glad you I'm glad you guys you've done a nice job of kind of weaving in um the the requirements with kind of what we're seeing, like with the the conditions in the market.
27:18
SPEAKER_04: Um and and so I I want to move to a an area that I've already mentioned a little bit, and I don't want to spend too much time on it um in the interest of of time, but I do I do think it obviously is a focus of something, Lindsay, that that you you and I both, when we worked at the staff, issued a lot of comments on.
27:35
SPEAKER_04: And it really was whether it was accounting policy footnote disclosures, right, or the critical accounting estimates within MDNA, um that was always an area of of staff focus.
27:45
SPEAKER_04: Um, what are we seeing?
27:47
SPEAKER_04: Are we seeing a lot of comments in that area still?
27:49
SPEAKER_04: Like, and and and if you can briefly, like what's an example or what should what do you think companies should be thinking about this year and specifically where you think the staff may be focused?
28:00
SPEAKER_03: Yeah.
28:00
SPEAKER_03: So level setting, real quick, critical accounting estimates.
28:03
SPEAKER_03: It's an estimate made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of Restaurant.
28:14
SPEAKER_03: Common examples that we always talk about in this space is your maybe your revenue recognition, your goodwill and tangible asset impairment, you know, valuation allowances, for income taxes, stock-based compensation.
28:27
SPEAKER_03: These are things that are consistently coming up under critical accounting estimate disclosures.
28:32
SPEAKER_03: So I know last year we talked about how the SEC staff codified its 2003 interpretive guidance, commission interpretive guidance on critical accounting estimates in 2020.
28:43
SPEAKER_03: So it's now part of regulation SK.
28:45
SPEAKER_03: Um, something interesting I noticed in the comments that were released in 2025 was that the SEC staff is still referring to the 2003 interpretive guidance as part of its critical accounting estimate comments.
28:58
SPEAKER_03: Um, so I was a little shocked to see that just because I thought that the actual 2020 release kind of addressed that and then the codification.
29:06
SPEAKER_03: Um, maybe under this new administration, we would see the SEC staff revisit the 1989, the 2003 Um Commission interpretive guidance on MDNA for reasons like this.
29:18
SPEAKER_03: So that way maybe they can condense it all into one updated interpretive guidance.
29:22
SPEAKER_03: Um, because it does kind of sometimes create confusion for preparers as you receive a letter um referring to older guidance when you know there's a new rule, you thought that you were complying with the rule.
29:35
SPEAKER_03: Um, so I just want to highlight that of, you know, don't be alarmed if you see reference to the 2003 rule.
29:41
SPEAKER_03: In a lot of ways, there a lot of that interpretive guidance still applies under the new rule.
29:47
SPEAKER_03: And that's why you haven't seen the SEC repeal it.
29:50
SPEAKER_03: So we've definitely seen continue commenting on it.
29:53
SPEAKER_03: Um, most common areas really are um your goodwill impairment.
29:58
SPEAKER_03: Yeah, honestly, and tangible asset impairment.
30:00
SPEAKER_03: Yeah.
30:01
SPEAKER_03: And what we've seen with the macroeconomic events and all, it makes sense um why we are seeing maybe more robust disclosures, maybe there's more reporting units at risk.
30:11
SPEAKER_04: The SEC changes in cash flows, changes in assumptions, right?
30:15
SPEAKER_04: Yeah.
30:15
SPEAKER_03: The SEC has um staff guidance out there in the financial reporting manual in section 9,500 of if you have a goodwill reporting unit at risk, that you need to provide additional mDNA disclosure for that at risk unit.
30:29
SPEAKER_03: Um, so I point people to that.
30:31
SPEAKER_04: That's a good reference point for people because it does provide good, good guidance.
30:35
SPEAKER_03: And that's what the SEC staff's commenting on is those topics.
30:38
SPEAKER_03: Um, the only other thing that I would highlight in relation to the critical accounting estimate disclosure is when this was codified again.
30:49
SPEAKER_03: Um, there was some maybe some additional language around the edges, similar to what I was highlighting with trends and uncertainties, uh, with the use of terms such as, you know, can you provide this information?
31:03
SPEAKER_03: Is the information available to you?
31:04
SPEAKER_03: So some of what the requirement is you have to provide the assumptions and inputs related to your critical accounting estimates, but you only have to do that to the extent the information is material and reasonably available.
31:18
SPEAKER_03: So again, there's that management judgment going in throughout management um discussion and analysis, but it is possible we don't always see as much of what we thought the SEC staff might comment on in this area in the actual disclosures, not as much quantitative information, because again, it's to the extent the information is material and reasonably available.
31:38
SPEAKER_03: So someone could conclude that some of that information isn't reasonably available to them.
31:44
SPEAKER_03: Um, and so the last thing of comment trends for critical accounting estimates is the sensitivity of the reported amount to the methods, assumptions, and estimates underlining its calculation.
31:56
SPEAKER_03: That's taken directly from the SEC rule.
32:00
SPEAKER_03: And that is an area, sensitivity of estimates that we do see the SEC continue to comment on.
32:05
SPEAKER_03: I know it's something that I saw when I was at the staff, um, not a lot of disclosure on sensitivity analysis.
32:11
SPEAKER_03: So I highlight that to say maybe you don't need to provide it in every circumstance.
32:16
SPEAKER_03: Cause again, you have to think it's material, is the information available.
32:20
SPEAKER_03: But anytime you might have an at-risk reporting unit, that's probably a place that the SEC wants to know if you were to change any of your key assumptions for your evaluation of your reporting unit, what point do you reach impairment?
32:34
SPEAKER_03: So again, going back to that section 9,500 of the FRM.
32:38
SPEAKER_03: Um, oh, the other thing, maybe I will add one more point of when I look forward to what the SEC staff might be commenting on.
32:45
SPEAKER_03: Going back to my remarks on the macroeconomic events and everything, um, with tariffs, we did see companies maybe buying inventory, more inventory earlier in the year because they were trying to prepare for higher costs related to the tariffs.
33:02
SPEAKER_03: Um, and so there might be heavy inventory.
33:06
SPEAKER_03: And so inventory valuations is the SEC gonna visit that this year because again, if you were buying up a lot of inventory earlier in the year, planning for this tariffs, you know, is the value still gonna be there?
33:19
SPEAKER_03: Um, and then the other thing is in relation to tariffs and interest rate assumptions, like anything else that that could affect your critical accounting estimates, I would expect the SEC will be thinking about that.
33:30
SPEAKER_03: Yep.
33:30
SPEAKER_03: And I look forward to the next month here, the SEC will be speaking at various venues.
33:35
SPEAKER_03: And I believe, Kyle, you're doing a podcast um to share those remarks kind of live.
33:40
SPEAKER_03: So I think that uh we should listen out for that because I bet you they're gonna cover a lot of this MDNA stuff.
33:46
SPEAKER_04: Yeah, I mean, look, I think it's it's obviously interesting that, you know, obviously a lot of great points there and good takeaways.
33:52
SPEAKER_04: I think as I think about, you know, kind of the SEC, you mentioned this, alluded to this, that that, you know, there, there we expect to see some changes, right?
34:01
SPEAKER_04: And in, you know, the focus on material disclosure.
34:04
SPEAKER_04: We've heard that from Chairman Atkins, um, a focus on ensuring that the information is grounded in the law, the securities laws, the requirements, that it is financial related material disclosure.
34:17
SPEAKER_04: Um, and you know, even today, um, you know, there he there was an op-ed or an opinion piece published in the Wall Street Journal.
34:25
SPEAKER_04: Um, you know, he he visited the the New York Stock Exchange, I think was going to visit another, I think the Nasdaq.
34:31
SPEAKER_04: So, you know, obviously he's out on the trail and and pushing this this you know agenda, this this approach.
34:36
SPEAKER_04: And so I think it'll it's very important for our listeners, I think, to to keep that in mind that that that there potentially will be some changes.
34:44
SPEAKER_04: Um it's it's a changing environment.
34:46
SPEAKER_04: And so obviously the pendulum continues to swing um back and forth.
34:50
SPEAKER_04: Um, all right.
34:51
SPEAKER_04: So as as we are wrapping this up, any tips, any any things that anything you wanted to share, I'll start with you, Ryan.
34:58
SPEAKER_04: Anything you want to share before you know we wrap this up?
35:02
SPEAKER_04: Any takeaways, any advice for our listeners before year end?
35:06
SPEAKER_05: Yeah, two two things come to mind.
35:08
SPEAKER_05: One is um, you know, as as you're as you're coming into year end for for our calendar year-end companies out there, as you're coming into year end, thinking about when preparing the business section or other parts of the document, just paying particular attention to discussion about new offerings, revenue, changes in strategy, um, new income streams, um, anything that maybe doesn't say reconcile to what you've had in your MDNA before.
35:36
SPEAKER_05: So that's another way of saying that is be careful just rolling forward your MDNA, making sure all of that fits together, because a lot of these comments, as I mentioned before, are are focused on that.
35:47
SPEAKER_05: The other is uh, you know, Lindsay mentioned a long list of things that have been happening in the world over the course of the past uh year or two.
35:55
SPEAKER_05: And I think that um being mindful of those, using um the the withdrawn, but still available on the SEC website, the the the the Division of Corporation Finance disclosure guidance topics, using that as kind of a mental checklist because as she said, it does requ the the rules read to require an assessment.
36:15
SPEAKER_05: So I think using that is perhaps just part of a a check to make sure that that you've you've considered all of that and the impact it has had or could have, I think is an important, important exercise.
36:27
SPEAKER_05: Lindsay?
36:28
SPEAKER_03: I've mentioned the financial reporting manual a few times, but I was mentioning that also because the SEC did staff did update it this summer and it included an update for the 2020 um MDNA amendments.
36:40
SPEAKER_03: Um so I think everything there, they actually still refer to older interpretive guidance like the 2003.
36:47
SPEAKER_03: So that means that the SEC staff does feel that's still applicable.
36:50
SPEAKER_03: So going to look at maybe a fresh look at that topic nine and the MDNA and the FRM and seeing maybe does a few things, let words were tweaked or whatever, but that still seems to apply, and they kind of confirmed that this summer.
37:02
SPEAKER_03: Um, I think that's another place to look to.
37:04
SPEAKER_04: Well, I think definitely a lot of great advice here.
37:07
SPEAKER_04: I want to thank you both again, Ryan, Lindsay, a great podcast and uh obviously in an area, a topic that's of heavy interest to our audience.
37:16
SPEAKER_05: Thanks for having me.
37:17
SPEAKER_04: Thank you.
37:19
SPEAKER_01: That's our show for today.
37:21
SPEAKER_01: Tune in next week for more fresh episodes.
37:24
SPEAKER_01: So that you never miss any of our audio content.
37:27
SPEAKER_01: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
37:31
SPEAKER_01: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
37:41
SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
37:45
SPEAKER_01: Thanks for tuning in.
37:56
SPEAKER_00: PwC refers to the U.S.
37:58
SPEAKER_00: member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PWC network.
38:05
SPEAKER_00: Each member firm is a separate legal entity.
38:07
SPEAKER_00: Please see www.pwc.com slash structure for further details.
38:14
SPEAKER_00: This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors, including accountants and lawyers.