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Foreign private issuers – SEC comment letter trends and more · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PWC's National Office.
0:07
SPEAKER_01: Hello and welcome to PWC's Accounting Podcast.
0:10
SPEAKER_01: I'm Heather Horn.
0:12
SPEAKER_01: Today's episode stays focused on SEC topics, but with a discussion of foreign private issuers, commonly referred to as FPIs.
0:21
SPEAKER_01: Many of the considerations we talk about for other SEC filers also apply to FPIs.
0:26
SPEAKER_01: However, there are some differences and some added complexities.
0:30
SPEAKER_01: So today we're bringing you an episode all about focus areas for FPIs in particular.
0:35
SPEAKER_01: What's the same, what's different, and what unique issues should FPIs gear up for this reporting season?
0:43
SPEAKER_04: The FPI world, when we think about it, there's close to 10 trillion of market cap of FPIs.
0:51
SPEAKER_04: And I heard that statistic recently from Paul Munter, and it really just made me pause as to the size and scope and scale of the FPI community.
1:03
SPEAKER_04: It's about 20% of the registrants on the exchanges.
1:11
SPEAKER_01: That was Patrick Higgins, Deputy Chief Accountant, responsible for the foreign private issuers support team and PWC's National Office.
1:19
SPEAKER_01: He's joined by Kevin Vaughn, a partner in the National Office, who previously spent nearly two decades at the SEC on the other side of these comment letters before joining PWC.
1:30
SPEAKER_01: With us again is the special guest host for this series Kyle Moffitt, PWC's National Office professional practice leader, who also previously spent almost 20 years with the SEC.
1:40
SPEAKER_01: This group has a lot of insight.
1:42
SPEAKER_01: So let's play the episode.
1:45
SPEAKER_03: Patrick, Kevin, thank you for joining me today.
1:47
SPEAKER_03: I'm excited, uh very excited, to chat with you both about what's going on in the foreign private issuer space.
1:53
SPEAKER_03: Um, you know, Patrick, as as our foreign private issuer leader and a member of the Center for Audit Quality's International Practice Task Force, you engage quite often with the SEC, you engage quite often with clients.
2:05
SPEAKER_03: And so love to kind of hear you kick off this discussion.
2:09
SPEAKER_03: Just talk about transaction trends in general in the FPI space.
2:13
SPEAKER_04: Yeah, first and foremost, the FPI world, when we think about it, there's close to 10 trillion of market cap of FPIs.
2:24
SPEAKER_04: And I heard that statistic recently from Paul Munter, and it really just made me pause as to the size and scope and scale of the FPI community.
2:36
SPEAKER_04: It's about 20% of the registrants on the exchanges.
2:40
SPEAKER_04: From a deal activity standpoint, I would call it green chutes.
2:45
SPEAKER_04: So we had a high watermark in 2021, and we know for a variety of reasons, the past call it three, four years have been relatively slow, both from an IPO standpoint, but also just general MA trends.
3:00
SPEAKER_04: In the last six, nine months, the deal volume for MA has gone up dollar wise by about 5%, but it's been concentrated in a, you know, I would say relatively fewer number of MA transactions.
3:17
SPEAKER_04: But that's starting to slowly shift.
3:20
SPEAKER_04: And the IPO markets, they're certainly up 2024 year to date versus 2023.
3:27
SPEAKER_04: A couple of noteworthy statistics there.
3:30
SPEAKER_04: One, we're still about half of not even half the volume from 2021.
3:37
SPEAKER_04: So it's still a sort of moderate, what I would call a moderate pace of IPOs.
3:43
SPEAKER_04: And when we think about the IPO types, 2021, we had a lot of SPAC IPOs.
3:49
SPEAKER_04: Those are in the single digits.
3:51
SPEAKER_04: So the SPAC IPO, I think as a result of some of the roles, but also the mixed success that some of those SPAC IPOs had, you are not seeing as many of those.
4:02
SPEAKER_04: But definite green shoots.
4:04
SPEAKER_04: I see the end of 2024 setting up for a relatively busy transaction season in 2025.
4:14
SPEAKER_03: Gotcha.
4:15
SPEAKER_03: Kevin, you you spent a lot of time at the SEC before joining PWC and your many different roles.
4:21
SPEAKER_03: You started in the Division of Corporation Finance, who are the staff that reviews filings and they're the folks you meet with, Patrick, on a regular basis.
4:28
SPEAKER_03: Can you talk us through kind of the SEC staff comment process, the staff review process and how that works with respect to foreign private issuers and foreign registrants?
4:37
SPEAKER_02: Yeah, no, absolutely.
4:38
SPEAKER_02: And and for our for domestic companies that are familiar with it, uh it's actually the same process uh that the domestic companies go through.
4:46
SPEAKER_02: So foreign private issuers, foreign registrants, uh they're all required under Sarbanes Oxley.
4:51
SPEAKER_02: The staff is required to review them once every three years, the same as they do domestic companies.
4:56
SPEAKER_02: And that review process is really entirely the same.
4:59
SPEAKER_02: Uh they look at they look at the company's filings.
5:01
SPEAKER_02: Uh you have the foreign private issuers who are filing on Forum 20F, their annual report, as well as like F forms for registration statements.
5:09
SPEAKER_02: Those all go through the same review.
5:11
SPEAKER_02: Uh other foreign registrants are probably using domestic, or maybe using domestic forms or or or whatever the case may be.
5:18
SPEAKER_02: Uh and and also like a lot of those foreign private issuers are are permitted to use IFRS or even a home country gap.
5:26
SPEAKER_02: There's not too many companies left that use home country gap.
5:29
SPEAKER_02: Most companies use IFRS, uh, and they can do that without reconciling that to US GAAP.
5:34
SPEAKER_02: Uh, if they use another home country gap, they might have to, they would have to consider the reconciliation requirements for those.
5:40
SPEAKER_02: Uh but the staff, the SEC staff is is well educated, well-versed in IFRS.
5:45
SPEAKER_02: Uh they've been trained on it, they stay up to date on it.
5:47
SPEAKER_02: Uh, and it's the same, the same people that are asking questions on domestic companies on US GAAP issues are also the ones asking the asking the comments on IFRS issues.
5:56
SPEAKER_02: And as we get into some of the comments later, I think you'll see uh clearly that the staff is is focused very much on accounting issues from an IFRS perspective as well.
6:05
SPEAKER_03: You know, interestingly, like in I think it's it's not just the IPOs that the staff reviews, right?
6:10
SPEAKER_03: The the staff is required to review, you know, 20F or whatever other filings, right?
6:15
SPEAKER_03: If it if it's you know once every three years.
6:18
SPEAKER_03: So the Sarbanes Astley Act requires that.
6:20
SPEAKER_03: And so to your point, right, this the staff, I mean, we when we were at the staff, we spent a lot of time, you know, getting training on IFRS, getting up to speed.
6:29
SPEAKER_03: Um, you know, you have about I don't know, about 200 people in the division reviewing filings or at least you know accountants.
6:35
SPEAKER_03: And so they get it.
6:36
SPEAKER_03: They they know IFRS, they know their foreign private issuer rules.
6:40
SPEAKER_03: And so, you know, obviously, I think you also then uh spent a lot of time in the office of chief accountant.
6:45
SPEAKER_03: And so the staff in that in that role, you you guys always educated the staff in Court Finn on IFRS matters.
6:52
SPEAKER_03: You dealt with consults on IFRS issues, right?
6:55
SPEAKER_03: So it it was it was like you were doing US GAAP and IFRS, right?
7:00
SPEAKER_03: Kind of hand in hand.
7:01
SPEAKER_02: Yeah, and the the office of chief accountant uh they have a an entire international group in that office that focuses on international accounting and auditing, and they're very plugged in uh with international regulators, uh with the IASB on standard setting uh efforts and and and all of that.
7:17
SPEAKER_02: So yeah, they're very, very well informed uh and and involved in the process uh and they share that knowledge throughout the throughout the agency.
7:25
SPEAKER_03: So so with that T up, considering how many of the standards, not all, right, which which um but how many of the IFRS and US GAAP standards are you know either fully or mostly converged, Patrick, it it seems to reason that many of the comment letter trends, you know, may be similar to to what we see uh in the US GAAP side of the house.
7:44
SPEAKER_03: Um can you talk a little bit about that, what we're seeing?
7:47
SPEAKER_04: Yeah, and and that's true, Kyle.
7:49
SPEAKER_04: I mean, the comment letters, the top five areas for comment are nearly identical between IFRS and US GAAP.
7:58
SPEAKER_04: They always change a little bit over time just because the registrant populations are different.
8:04
SPEAKER_04: But when you look at the top five for IFRS, I don't think anybody's going to be surprised by them.
8:11
SPEAKER_04: First and foremost, non-GAAP.
8:13
SPEAKER_04: You have mDNA comments, segment reporting comments, revenue recognition and revenue comments, revenue disclosure comments.
8:20
SPEAKER_04: And last but not least, financial instruments.
8:24
SPEAKER_04: Financial instruments just replaced business combinations like a month ago.
8:29
SPEAKER_04: So that's that's new data.
8:31
SPEAKER_04: But listen, business combinations is six.
8:33
SPEAKER_04: So between US GAP and IFRS, the top five are generally consistent.
8:41
SPEAKER_03: And that makes sense with what you said earlier about the BISCOMs, like the transactions, like a little bit slower, but like when you think about financial instruments and the complexities there, it seems to reason that that would move up.
8:52
SPEAKER_03: So that that makes sense.
8:53
SPEAKER_03: Trevor Burrus, Jr.
8:54
SPEAKER_03: Does make sense.
8:54
SPEAKER_04: Yeah.
8:55
SPEAKER_04: So so just thinking about non-gap for a second.
8:59
SPEAKER_04: So it's not uncommon in a 20F periodic filing for registrants to put non-gap financial information in that filing.
9:10
SPEAKER_04: So and they may also put it quarterly in a 6K filing, which is subject to different roles than a domestic registrant might have.
9:20
SPEAKER_04: Specifically, foreign registrants don't have to think about reg G in a press release like the domestic registrants do.
9:30
SPEAKER_04: And the non-gap comment letters for FPIs, very similar to domestic registrants.
9:36
SPEAKER_04: What I like to focus on are the comments that either our clients received or I saw in the marketplace that actually drove a change in the registrants reporting moving forward.
9:48
SPEAKER_04: And you know, the the number one area for comment on non-gap companies, non-gap disclosures for FPIs, I think domestics too, are individually tailored accounting principles, right?
10:02
SPEAKER_04: And I like to describe those, these are my own words, you're not going to find them anywhere else.
10:06
SPEAKER_04: But that's where a company doesn't necessarily.
10:57
SPEAKER_04: So it's not uncommon in the past for registrants to say, hey, that's not really controllable.
11:03
SPEAKER_04: That's not part of our core business operations, and accordingly, we're going to take that out of our non-gap results.
11:10
SPEAKER_04: Uh recently, about a year ago at last year's SEC conference, the staff talked about inventory and they said, you know, hey, registrants, put on notice if you are making adjustments to inventory, you need inventory to run your business.
11:25
SPEAKER_04: So that would seem to be an ongoing normal operating cost and not something that would be taken out of non-gap results.
11:34
SPEAKER_04: And I can tell you, I've seen a number of registrants get that comment since last year's uh last year's AICPA conference, and you know, have to change the way they uh measure their non-gap adjustments related to no surprise.
11:51
SPEAKER_03: I mean, we see I've I've seen it in the domestic space, and I think we continue to see it pop up.
11:55
SPEAKER_03: So that I that's interesting.
11:57
SPEAKER_03: I hadn't even thought that about the former private issuers also kind of doing the same thing.
12:01
SPEAKER_04: Yep.
12:01
SPEAKER_04: Yep.
12:02
SPEAKER_04: I I mean the other one that's out there are metrics that the staff asks the company, hey, is this misleading?
12:09
SPEAKER_04: Yes or no?
12:10
SPEAKER_04: And the one that often comes to mind for me are you know, companies that operate in industries where they get big upfront payments and their revenue recognition just because of how the standards work can be a little, my words, lumpy, right?
12:28
SPEAKER_04: And and and they say, hey, we're going to adjust our revenue and and present an adjusted revenue metric, maybe a cash-based revenue metric as an example.
12:39
SPEAKER_04: And I've seen the staff say, well, company, you're you say in the fore part of the document you're in business to make revenue, and you're adjusting revenue not for something like constant currency, but based on when you get cash, that doesn't necessarily seem to be um you know the most straightforward way to uh present revenue.
13:03
SPEAKER_04: And accordingly, we believe that's misleading.
13:06
SPEAKER_04: And I've seen registrants change their reporting based on that comment.
13:11
SPEAKER_04: So what I the message I always try to give our foreign registrants, other than constant currency, it's really not a great idea to adjust revenue and inventory.
13:24
SPEAKER_04: You know, of course, talk to your advisors.
13:26
SPEAKER_04: There could be that one in a million circumstance, but but that's that's generally the advice that that I provide.
13:34
SPEAKER_04: And then to round out non-gap, I would call the rest of the comments that that I've seen that are most common are really disclosure related.
13:43
SPEAKER_04: So not reconciling to the right metric, or maybe not clearly articulating exactly what all of the non-gap adjustments relate to and forgetting the reconciliation.
13:56
SPEAKER_04: I've seen that a couple of times where registrants have presented multiple measures, and then you know, unfortunately, they don't they don't reconcile all of them.
14:04
SPEAKER_04: So all good things to uh keep in mind as the year end closes out.
14:10
SPEAKER_04: The last thing I would say on non-gap, in particular for our FPIs, it's really complicated because there are multiple jurisdictions and multiple regulators involved, and what may work under one reporting regime may not work under a different reporting regime.
14:28
SPEAKER_04: And tacit agreement to a non-gap measure in one territory may not be explicit agreement.
14:38
SPEAKER_04: What I mean by that is just because a regulator in another territory hasn't commented on a non-gap metric, it doesn't mean that they absolutely um agree with it.
14:48
SPEAKER_04: And oftentimes our FPIs think that they do because it's it's used in their home country, but the SCC uh rules and interpretations are are definitely different.
15:03
SPEAKER_02: And they can impact that.
15:04
SPEAKER_04: Yeah.
15:04
SPEAKER_02: Yeah.
15:05
SPEAKER_02: And I just to add in, I think, on non-gap, because it is such a it's such a big topic, right?
15:10
SPEAKER_02: And and it's all the time what it's what we're talking about, uh, both domestic and FPI.
15:15
SPEAKER_02: And so just maybe a little bit of a plug.
15:17
SPEAKER_02: Uh I think some right before the holidays, I think we're gonna we're gonna do a podcast on on non-gap, Kyle, you uh you and I, uh as well as Lindsay McCord.
15:25
SPEAKER_02: Uh and so we're gonna talk about some non-gap trends.
15:28
SPEAKER_02: Uh some similar here, but but certainly I'm gonna put in a pre-plug for that uh for that podcast.
15:34
SPEAKER_02: Yeah, yeah.
15:35
SPEAKER_02: It'll be entirely focused on non-gap as well.
15:38
SPEAKER_03: So well, and I and look, I think the other piece of this too, right, is you know, the staff does have there's a lot out there, right?
15:43
SPEAKER_03: Like like you talked about, we talked previously about your role on the IPTF, right, with the CAQ's IPTF, which you know that there are minutes to those meetings.
15:52
SPEAKER_03: We certainly encourage people to listen and or look at those.
15:55
SPEAKER_03: The financial reporting manual that the staff has published on their website.
15:58
SPEAKER_03: People can look at that.
15:59
SPEAKER_03: I mean, so there's plenty of guidance out there, but I think I think the interesting point that you made, Patrick, on on that topic is is hey, ask the people, right?
16:08
SPEAKER_03: Talk to the experts.
16:09
SPEAKER_03: You're an expert.
16:10
SPEAKER_03: You guys are both experts in this, so reach out to the the the respective experts in these areas.
16:16
SPEAKER_03: So I want to transition now, Patrick, to segment reporting.
16:20
SPEAKER_03: And I know that this is an area we we've all been talking about quite a lot, you know, especially with the domestic, you know, the changes or the the the cha amendments to this the segment standard under U.S.
16:30
SPEAKER_03: Gap.
16:31
SPEAKER_03: But can you talk a little bit about what's going on in that space?
16:34
SPEAKER_04: Yeah, it it's a frequent area for comment.
16:37
SPEAKER_04: And I'll end and start with the same comment on segments.
16:42
SPEAKER_04: It's a really good idea each and every reporting cycle to take a look at the CODM package.
16:49
SPEAKER_04: What's in it?
16:50
SPEAKER_04: What's it say?
16:51
SPEAKER_04: How's the business described in that package?
16:54
SPEAKER_04: How is the business described in the mDNA?
16:57
SPEAKER_04: Does that line up?
16:59
SPEAKER_04: Do the reportable segments make sense when you look at the CODM package?
17:06
SPEAKER_04: A lot of the comments that the staff provides registrants are that basic.
17:12
SPEAKER_04: It's it's it's really have you refreshed or taken a fresh look at the CODM package vis-a-vis what the external reporting says.
17:22
SPEAKER_04: And fortunately or unfortunately, a lot of times the answer to that question is no.
17:27
SPEAKER_04: Businesses are dynamic.
17:29
SPEAKER_04: The people that run the businesses, they constantly change.
17:32
SPEAKER_04: They want to look at new things, they want to look at new metrics, they have new competitors, they enter into new businesses.
17:39
SPEAKER_04: And when they do all that kind of stuff, ordinarily they ask for different financial information.
17:45
SPEAKER_04: And that's why I think it's so important to refresh that analysis year over year.
17:51
SPEAKER_04: I mean, the common questions that that we see and in no particular order, a lot of times companies aggregate similar operating segments to get to their reportable segment.
18:04
SPEAKER_04: The most frequent comment that I see there is are economically the operating segments that were aggregated, are they truly similar, right?
18:14
SPEAKER_04: And you know, there are there are benchmark thresholds and and the standards for what similar means.
18:20
SPEAKER_04: Um and you know, often I see companies argue, well, okay, today they're not similar, but we think from a long-term standpoint, they are going to be in a you know, and in a long-term basis, they're going to be similar.
18:34
SPEAKER_04: And sometimes that argument works, and sometimes it it does not work.
18:38
SPEAKER_03: Depending on the staff reviewing it, right?
18:39
SPEAKER_03: Trevor Burrus, Jr.
18:40
SPEAKER_04: Yeah.
18:40
SPEAKER_04: Well, it yes and no.
18:42
SPEAKER_04: It it usually it comes down to the underlying business.
18:45
SPEAKER_04: Like is that a logical argument?
18:47
SPEAKER_04: Yeah, is that a large logical argument given the the business that the company operates in?
18:53
SPEAKER_04: Some of the comments are as simple as show me your CODM package, because the way you describe your business in MDNA looks a little bit different from the way you report it in your financial statements.
19:07
SPEAKER_04: And I just want to see you know the CODM package, and then when the staff receives it, then they have extra questions or additional questions.
19:15
SPEAKER_03: And other questions on other topics within there that they find.
19:18
SPEAKER_04: That's correct.
19:19
SPEAKER_04: So so when those are the two most common questions from the staff that I have seen that have led registrants to change their externally reported segments and in their footnote.
19:33
SPEAKER_02: I have seen oh, go ahead.
19:35
SPEAKER_02: Oh no, I'm sorry.
19:35
SPEAKER_02: I was just gonna say, and and one thing we'll talk more about, you know, responding to comments, but but segment comments generally go much longer.
19:43
SPEAKER_02: Like they're usually a couple of rounds when you're going back and forth talking through this, uh, just to get the staff up to speed.
19:49
SPEAKER_03: So uh it's rare rarely ever a one response and you're done, right?
19:54
SPEAKER_03: Like at least our an all of our collective experience.
19:56
SPEAKER_04: Yeah.
19:57
SPEAKER_04: That's true.
19:57
SPEAKER_04: That's true.
19:58
SPEAKER_04: I on the disclosure side in the IFRS world, historically, a common comment was in particular for single segment companies, if they showed multiple uh management, well, I'm gonna call them management performance measures, but I should say segment performance measures for companies that show multiple segment performance measures.
20:23
SPEAKER_04: The staff has asked why are you showing more than one?
20:28
SPEAKER_04: You're a single segment company.
20:31
SPEAKER_04: You've reported IFRS numbers or gap numbers, why the second measure of profitability?
20:38
SPEAKER_04: And that's been hard for a lot of our FPIs to understand.
20:43
SPEAKER_04: And I I do think going forward with the change in the US segment standard, with you know, some of the changes in the IFRS segment standard, right?
20:53
SPEAKER_04: That perhaps that comment may fall by the wayside.
20:57
SPEAKER_03: But we will see, right?
20:59
SPEAKER_03: They'll still be focused on it.
21:00
SPEAKER_03: They'll certainly be focused on it.
21:01
SPEAKER_03: But I think I think your point's a good one there, right?
21:04
SPEAKER_03: Because when you think about kind of the the the new segment standard at least or the amendments under the US GAAP, the ability to present that additional measure.
21:12
SPEAKER_03: Now, do we think a lot of companies are going to do that?
21:15
SPEAKER_03: Probably not at the outset, but maybe over time.
21:17
SPEAKER_03: But we we've heard there there are a decent number of companies interested in in looking into it.
21:22
SPEAKER_03: So uh, but but I'm with you there.
21:24
SPEAKER_03: I think I think we may see we'll see questions on it, but I don't think it'll be the same approach or tone that they have in in in the past.
21:32
SPEAKER_03: Um so so revenue recognition, you mentioned that.
21:35
SPEAKER_03: Well, what are we seeing there?
21:36
SPEAKER_04: Revenue is obviously the most important financial statement line item in you know in the financial statements.
21:42
SPEAKER_04: I mean, companies are traded on revenue revenue modulables and the like.
21:48
SPEAKER_04: So obviously the staff's going to have questions around revenues.
21:53
SPEAKER_04: The most important uh item in the financial statements from my point of view.
21:59
SPEAKER_04: From a Measurement standpoint, the questions that I see really asking companies about the integrity of the historical financial reporting are usually around multiple element contracts or contracts with multiple performance obligations.
22:17
SPEAKER_04: And those questions are often companies should the revenue have been recognized at a point in time?
22:24
SPEAKER_04: Should it have been recognized over time?
22:27
SPEAKER_04: Tell me a little bit more about the estimates that went into recognizing the revenue over time, depending on what the inputs were to uh that that measurement technique.
22:41
SPEAKER_04: So, you know, frequently when we think about industries, more common in tech and biotech health industries, for there to be um comments in that area that talk about the revenue arrangements and whether the timing or the amount of revenue recognized was appropriate.
23:02
SPEAKER_04: I I would say often those comments come when there's a significant contract or arrangement, and that arrangement is included as part of the filing, right?
23:13
SPEAKER_04: So there's a lot of rich information on a revenue contract in the document.
23:20
SPEAKER_04: So it's a really good idea for registrants to definitely work with their accountants, make sure they're supporting that revenue recognition in the filing when they have those large contracts, and to make sure that they're getting to the right people at the right time.
23:40
SPEAKER_04: You know, when it comes to disclosures of revenue, gross versus net still comes up from time to time.
23:47
SPEAKER_04: Uh disaggregated revenue disclosures in the financial statement footnotes.
23:52
SPEAKER_04: I will say that's more common for GAAP than IFRS because IFRS filers have a tradition of providing that information.
24:03
SPEAKER_04: But listen, half our FPIs are US GAAP.
24:07
SPEAKER_04: So it is it's still common in in that arena.
24:12
SPEAKER_04: Um the allocation of transaction price between performance obligations.
24:17
SPEAKER_04: I touched on that a little bit, but from a measurement standpoint, also from a disclosure standpoint, how did the company do it?
24:25
SPEAKER_04: How did they think about it?
24:27
SPEAKER_04: Uh, etc.
24:28
SPEAKER_04: So that's really what we're seeing in the revenue arena.
24:32
SPEAKER_04: I will also say revenue area that should be 100% converged between gap and IFRS.
24:40
SPEAKER_04: And I will tell you from operating internationally, it's not always viewed that way in the international arena.
24:47
SPEAKER_04: So foreign private issuers should be really careful and make sure they are you know thinking about the gap revenue inter interpretations, because I do think that's where a regulator would migrate to.
25:00
SPEAKER_03: Yeah.
25:01
SPEAKER_03: So you know, I think as you were talking about revenue, I started thinking of kind of you know the next topic, right?
25:06
SPEAKER_03: Because you're talking all about disclosures and then the next the next area of focus, right, MDNA, which you fully expect to see like a rich, robust discussion of all of these elements.
25:16
SPEAKER_03: I know we have a podcast on MDNA as well.
25:18
SPEAKER_03: And so um certainly refer people to that because I think obviously that is going to apply to both domestic and foreign private issuers.
25:25
SPEAKER_03: But any points you wanted to make on MDNA, what we're seeing there?
25:28
SPEAKER_04: Aaron Powell I'll make a couple of overall observations on how to avoid comments, but then I'll I'll talk about some of the some of the comments that that I've seen over the past year.
25:41
SPEAKER_04: In that first lens, how to avoid comments.
25:44
SPEAKER_04: I always say a picture is worth a thousand words, right?
25:48
SPEAKER_04: So let's just talk about revenue.
25:50
SPEAKER_04: We were just talking about revenue.
25:52
SPEAKER_04: If you have a picture that shows the volume change, the price change, the currency impact, the impact of mergers and acquisitions, and then you get to a total revenue change.
26:03
SPEAKER_04: Wow, all of a sudden a lot of questions that might have been raised or issued with respect to the changes in revenue for the current year have been answered by putting in a simple table that's less than a half page long.
26:16
SPEAKER_04: So think about that.
26:17
SPEAKER_04: Think about where pictures, charts, graphs can tell the story of your underlying business on that DNA.
26:26
SPEAKER_03: We you and I both have seen a comment from the staff actually encouraging a company to do the same, to put in a chart to better explain their results and changes or period over period.
26:37
SPEAKER_03: So I I think that's a good a good suggestion.
26:39
SPEAKER_04: Yep.
26:40
SPEAKER_04: So so just getting to comments when maybe folks are not as proactive in some of their disclosures, just simply quantifying explanations for why things changed, right?
26:53
SPEAKER_04: So revenue increased by five percent.
26:58
SPEAKER_04: Well, that's not really an explanation.
27:00
SPEAKER_04: Like why did it increase five percent?
27:02
SPEAKER_04: Was it price, was it volume, was it currency, was it a combination of all the above?
27:07
SPEAKER_04: So quantifying explanations would be the first bucket.
27:12
SPEAKER_04: And then the next bucket of comments I I I would put under the broad umbrella of telling the story of the business for the year, right?
27:22
SPEAKER_04: So what do I mean by that?
27:24
SPEAKER_04: Well, let's talk about in the current year where maybe dominating the PL results were a significant impairment, right?
27:35
SPEAKER_04: So, you know, there was a massive shift in the underlying business and it caused an impairment, and companies simply disclose we had an impairment charge of$5 billion.
27:47
SPEAKER_04: Well, why?
27:48
SPEAKER_04: What were the economic factors that drove that impairment charge?
27:52
SPEAKER_04: What accounting estimates were made?
27:54
SPEAKER_04: And did were those accounting estimates sensitized in the financial statements and the MDNA?
28:01
SPEAKER_04: Did the MDNA take it a step further than the financial statements did?
28:06
SPEAKER_04: Yes or no?
28:07
SPEAKER_04: I will say IFRS filers generally have very rich sensitivity disclosures in their financial statement footnotes.
28:15
SPEAKER_04: If you take a look at a set of IFRS financial statements, they're gonna be probably several hundred pages long.
28:21
SPEAKER_04: They're usually much longer than gap financial statements.
28:25
SPEAKER_04: So what registrants need to do in the mDNA is not repeat what's in the financial statements, but provide a little more richness and color around why those estimates were selected, like what were the options, et cetera.
28:42
SPEAKER_04: And that's I've I've I've seen comments on that.
28:45
SPEAKER_04: Liquidity disclosures are huge, right?
28:48
SPEAKER_04: Often analysts, others are looking at the underlying business for the liquidity.
28:56
SPEAKER_04: That's potentially how they're valuing the company.
28:59
SPEAKER_04: So repeating the cash flow statement, probably not a great idea in approaching liquidity disclosures, but also more importantly, are there key contracts where you know there are upcoming payments that somebody needs to understand from a liquidity standpoint that may impact the company's ability to do deals, uh, may impact their ability to continue as a going concern, right?
29:26
SPEAKER_04: From a liquidity standpoint.
29:28
SPEAKER_04: So, you know, there are often comments on on liquidity key agreements, right?
29:34
SPEAKER_04: So were there key agreements in the current year that the company entered into that had a significant impact on the entity and the entity's results and and has that been appropriately described in in the MDNA?
29:50
SPEAKER_04: And and the last hint I would give that I also see comments would really be this notion of early warning in the MDNA.
29:58
SPEAKER_04: Do you see some dangerous uh things happening in the future?
30:04
SPEAKER_04: Do you see um sort of dark clouds on the horizon with respect to aspects of the business?
30:11
SPEAKER_04: Could there be an impairment there?
30:13
SPEAKER_04: Um you know, that's that's always a helpful disclosure, and it's something the staff comments on when there's you know a big bullet charge.
30:22
SPEAKER_02: Uh or they're look back and yeah, why why didn't you disclose this sooner?
30:26
SPEAKER_03: Yeah, correct.
30:28
SPEAKER_03: So so financial instruments, anything there.
30:32
SPEAKER_03: I know that's that's a a heavy topic.
30:34
SPEAKER_03: I don't know if we want to get into too much detail on that.
30:38
SPEAKER_04: But it what I would say is really two or three things.
30:42
SPEAKER_04: First, instruments that have characteristics of debt, equity, or something in between, you know, think preferred stock, think warrants.
30:53
SPEAKER_04: Um they can be very complex in nature.
30:56
SPEAKER_04: And the and the staff often asks about the accounting, and let's not forget the EPS impacts as you know, as well, of those instruments.
31:06
SPEAKER_04: So that that would certainly be one.
31:08
SPEAKER_04: And then those instruments often contain complex clauses, yeah.
31:14
SPEAKER_04: Uh conversion clauses as an example that um you know may require settlement in cash and could be deemed a derivative or an embedded derivative.
31:25
SPEAKER_04: So just you know, registrants ought to be focused on that.
31:29
SPEAKER_04: And again, this is something where in the financial statement filing or the 20F, the company may have filed the actual, you know, may have filed the document.
31:42
SPEAKER_03: And the staff will read it.
31:43
SPEAKER_03: That's right.
31:43
SPEAKER_03: The staff will read it.
31:44
SPEAKER_03: That's right.
31:45
SPEAKER_03: Just like you'll read it when you review a filing, you'll take a look and see what weird clauses are in there.
31:49
SPEAKER_03: And I think it's just important, like not all of these are created equal, right?
31:53
SPEAKER_03: You could see very similar deal, but it's it's obviously tailored to the company, tailored to the agreement they have with whoever, the investor or you know, the other party.
32:03
SPEAKER_03: So I think that's those are great points.
32:05
SPEAKER_04: Well, and there's there's the other thing to react to there, Kyle, is depending on your background as an accountant, right?
32:12
SPEAKER_04: If you're if you're steeped in financial instruments, and maybe you worked at a bank, or maybe you were at the SEC and you worked in the banking and capital markets group, and then you transitioned to an industry group, you may have a much different view on the accounting than somebody that's been in that industry for a long, long time.
32:29
SPEAKER_04: Yeah.
32:30
SPEAKER_04: No, it's I think it's a those are fair points.
32:32
SPEAKER_02: Did you want to add?
32:33
SPEAKER_02: Yeah, no, I mean, I just I I wanted to go back a little bit to uh because Patrick and you were talking about liquidity disclosures, and you you mentioned the statement of cash flow.
32:41
SPEAKER_02: So I feel like it's like mandatory now.
32:43
SPEAKER_02: We have to mention statement of cash flow and everything in the case.
32:48
SPEAKER_03: I mean chief accountant of Corpfin, and you mentioned, I mean the the agency, you met you mentioned that earlier that you know Paul Paul is certainly out there talking about the the foreign markets quite often.
32:57
SPEAKER_03: He has an interest in the international space, but he's also had a heavy interest in cash flows.
33:01
SPEAKER_02: Yeah, and and so it just just a reminder there on cash flows, right?
33:04
SPEAKER_02: And and he had the statement last year at the end of last year, uh just reminding people don't wait till the last minute to do your statement of cash flows.
33:12
SPEAKER_02: You know, think about it when you're thinking about the accounting, uh, including if you've got complex financial instruments or or whatever the case is, think about what the cash flow implications are going to be as well at the same time.
33:23
SPEAKER_02: And so it again, it's not it's not necessarily in the top five comment letter trends, but but I think, and and this is similar to to what you brought up on the financial instruments, when there is an issue, uh, it becomes very complicated for a company, especially if if it's determined that there was an error, uh, those errors can turn out to be material pretty quickly.
33:44
SPEAKER_02: Uh you might you might quickly get to a conclude conclusion that those are material uh and have to restate.
33:49
SPEAKER_02: So that's why we always flag uh cash flow as well, just just for that, for that reason.
33:54
SPEAKER_03: Look, that a lot of great content there, guys, on on the comment letters and what we're seeing, the trends in the FPI space.
34:01
SPEAKER_03: Patrick, yeah, as we kind of then think about kind of phase two of this, it's like, okay, you get the comment letter with all of these comments in them.
34:09
SPEAKER_03: Can you talk a little bit about kind of, and both of you'd interested to hear kind of your reactions, best practices in responding to the SEC?
34:17
SPEAKER_04: Yeah, the first thing that I would say is in particular for our FPIs, they're accustomed to dealing with different regulators, not always the US SEC.
34:30
SPEAKER_04: And the level of intensity of that regulator may be different depending on the market, depending on the company's size, et cetera, et cetera.
34:40
SPEAKER_04: So when the SEC sends you a comment letter, the first thing I would say is take it seriously, right?
34:46
SPEAKER_04: It's not a it it's not a throwaway comment.
34:50
SPEAKER_04: They spent a lot of time, somebody highly trained looked, you know, looked at the filing, they looked at your That's debatable when we were talking about Kevin reviewing a filing when he was at the staff.
34:59
SPEAKER_03: Not true.
35:00
SPEAKER_04: Not true.
35:02
SPEAKER_04: So so they've put a lot of thought and somebody has reviewed the comment that the company has received.
35:09
SPEAKER_04: So take it seriously.
35:11
SPEAKER_04: Step two, take your time, be thoughtful, be complete in the analysis.
35:17
SPEAKER_04: Now I know that, especially you know, being a client service partner, the first thing that I always said to my clients whenever they got a comment letter is all right, let's take stock.
35:29
SPEAKER_04: What's happening at the company?
35:31
SPEAKER_04: Are there MA transactions that are imminent?
35:34
SPEAKER_04: Is there a divestiture that's imminent?
35:37
SPEAKER_04: Is the company raising money?
35:38
SPEAKER_04: Is that imminent?
35:40
SPEAKER_04: Could this comment letter impact any of those timelines?
35:43
SPEAKER_04: Yes or or no?
35:46
SPEAKER_04: Certainly if the answer is no, then absolutely you have to take your time, you have to be thoughtful, you have to be complete in the analysis.
35:56
SPEAKER_04: Speed is not always a company's friend.
35:59
SPEAKER_04: If there is a timeline, in other words, you have a week, you have two weeks, make sure you fully understand the question and you have the right advisors lined up to respond while it's expeditiously but thoughtfully and carefully.
36:15
SPEAKER_04: Um and and get your advisors, whether they're accountants, lawyers, advising accountants and and the like, lined up to give you the best advice and making make sure you're getting that best advice from the right people in inside those organizations.
36:34
SPEAKER_04: When you get that advice, sometimes it's not all going to be the same.
36:37
SPEAKER_04: So the an attorney may have one view, an accountant may have another view, and it's it's the company's decision as to how to thoughtfully wade through the various points of view to get to a common ground or um a common point of view.
36:57
SPEAKER_04: The the other thing that I would say is really important is every company's facts and circumstances, they're different, right?
37:06
SPEAKER_04: So cutting and pasting from another comment letter in your industry where you think somebody got a similar comment letter.
37:14
SPEAKER_04: While there may be helpful bits of information in there, that's not necessarily the um you know the best thing to do when responding to uh the staff.
37:27
SPEAKER_04: And the last thing I would say is it does happen from time to time that finance statements are updated or revised or even restated as a result of a staff comment.
37:40
SPEAKER_04: When that happens, the company has to remember they have disclosure controls and procedures.
37:47
SPEAKER_04: The external auditor is probably thinking about the ICFR opinion.
37:52
SPEAKER_04: And from a controls and process standpoint, um, yeah, has the company done the appropriate analysis to determine whether they have a material weakness and internal controls over financial reporting or their disclosure controls and and procedures.
38:10
SPEAKER_04: So not I don't like to leave you with a gloomy tone, but that's just the facts.
38:17
SPEAKER_02: Yeah.
38:17
SPEAKER_02: Yeah.
38:17
SPEAKER_02: And and I just want to I think double down on what you said at the beginning there, uh like in terms of taking it seriously.
38:24
SPEAKER_02: When I was at the staff, Kyle, I'm sure you probably had a similar experience.
38:27
SPEAKER_02: It was always a little bit of a head scratcher, but but I've seen it, I've seen it here as well.
38:32
SPEAKER_02: Uh it's not uncommon, and and it may just be a cultural difference in terms of like the role of the regulator and and understanding what that interaction is.
38:41
SPEAKER_02: But when I was at the staff, I would see FPIs respond to comments.
38:45
SPEAKER_02: Uh, and it was clear that they had not put a whole lot of effort into it uh and they weren't necessarily taking it seriously, right?
38:52
SPEAKER_02: So to that point, um, and and companies can get themselves into a lot of a lot of trouble if in that situation.
38:58
SPEAKER_02: If you don't take it seriously, uh, you know, you might get a comment back from the staff that you know drills down and asks 20 very, very detailed questions because they they were serious on the first letter and they wanted the, they wanted the answers, they wanted the responses.
39:14
SPEAKER_02: Uh, and so really taking that time, uh, just like you said, Patrick, taking the time, make sure you understand the comment, uh, be thoughtful and thorough in the response, answer the questions that are in there.
39:25
SPEAKER_02: And these are basic things, but but I do it it, I have seen it a number of times where uh maybe companies that are located in a different different jurisdiction that aren't as familiar with the SEC uh process, uh, you know, they they can get themselves into a little bit of trouble there.
39:42
SPEAKER_02: And then the other point that I would say, you know, we talked about a lot of these accounting issues, and particularly when you're talking about IFRS, right?
39:48
SPEAKER_02: And and a lot of our FPIs might be subject to multiple regulators, uh, and they're applying IFRS and all those different jurisdictions.
39:57
SPEAKER_02: Uh, and so theoretically there should be consistency, but it does happen from time to time where the SEC may take a different view on an IFRS application than uh another country regulator.
40:09
SPEAKER_02: Uh, and and so it, you know, that would that happen a number of times when I when I was at the staff, when I was in the office of the chief accountant.
40:16
SPEAKER_02: And I just think it's important for companies if you've had a conversation with your local regulator about the accounting, maybe at some point, uh that's helpful information to bring forward to the staff.
40:26
SPEAKER_02: Uh they do spend a lot of time engaging internationally uh on a number of different issues, including talking through IFRS accounting issues.
40:35
SPEAKER_02: Uh, and and certainly they would want to know if there was a difference in opinion between those.
40:40
SPEAKER_02: And a lot of them they they may know.
40:42
SPEAKER_02: Uh, but but certainly if you've had a conversation with your local regulator on an issue, uh, bring that forward to the staff.
40:48
SPEAKER_02: There is cooperation between the SEC and and uh different regulators around the globe.
40:54
SPEAKER_02: Uh and so just from the process, the more the earlier you can bring that into the process, the better.
40:59
SPEAKER_03: Uh and which leads me to the other thing that you triggered in my mind as you said that is situations where when we're talking about responding to comments, you obviously want a fulsome response to each comment that's issued, but there are times when there's a transaction or you know, an amount is very immaterial, but it's not apparent to the staff that it's immaterial.
41:20
SPEAKER_03: And so it it in responding up front, make sure you say this is immaterial to our financial statements and provide the number, provide the percentage, the calculation so the staff can see it.
41:31
SPEAKER_03: Because a lot of times that can also you know kind of solve the the the process, you know, at least make the process much quicker and much smoother.
41:38
SPEAKER_03: Um so so as we think about kind of what things look like for you know 2024 year ends, but then also as we look ahead and thinking forward, which which we always like to do, right?
41:50
SPEAKER_03: Because there can be new standards, there may be other impacts, like as you you said earlier, Patrick, we're talking about different transactions that may be upcoming.
41:57
SPEAKER_03: Um so what what what hot topics, what what other things should be at the top of mind for our listeners?
42:04
SPEAKER_04: One of the things that I always ask registrants, usually it's in the second or third quarter, not now, but it's still not too late, is have they taken a look at either their FPI status or their emerging growth company status?
42:23
SPEAKER_04: So at the middle of the year, so June 30th of every year, companies have to look.
42:30
SPEAKER_04: Am I still a foreign private issuer, right?
42:32
SPEAKER_04: They have to look at their shareholder base and is it you know predominantly US based or not?
42:39
SPEAKER_04: They have to look at their asset base, their principal place of business.
42:44
SPEAKER_04: And while that may sound and seem easy, for a lot of the foreign private issuers, it's not, right?
42:54
SPEAKER_04: A lot of them are say emerging growth companies in pharma, biotech, in technology.
43:02
SPEAKER_04: And while the idea might have incubated in some territory overseas, when they transition to RD and then, you know, potentially a commercial organization or their tech really takes off, oftentimes it's the US marketplace where that all happens, right?
43:22
SPEAKER_04: So the principal place of business when a company is early in their cycle and then they are growing more and mature becomes a more interesting question.
43:33
SPEAKER_04: Same thing with shareholder involvement, right?
43:35
SPEAKER_04: Shareholders, as that business shows a little bit of promise, then a lot of promise, you know, a lot of the investors with big money, they still sit in the United States.
43:46
SPEAKER_04: So uh that that can change.
43:48
SPEAKER_04: And that's a huge impact.
43:50
SPEAKER_04: Yeah.
43:50
SPEAKER_04: It right?
43:50
SPEAKER_03: You're you're now in in 10 K world, right?
43:53
SPEAKER_03: You're you're you know, filing Qs and K, you know, and so it's just a little bit different.
43:57
SPEAKER_03: And you do apply gap, not I for S.
43:59
SPEAKER_03: Yeah.
44:00
SPEAKER_03: I mean you're in a different ball like a different ball game.
44:02
SPEAKER_04: Yeah.
44:03
SPEAKER_04: You have to do eight Ks, right?
44:04
SPEAKER_04: Whereas the AK reporting regime is much more onerous than the six K reporting regime.
44:10
SPEAKER_04: So it making sure that assessment or reassessment was done mid year, in particular in organizations that don't have a big legal team.
44:17
SPEAKER_04: Right.
44:17
SPEAKER_04: Yeah.
44:18
SPEAKER_04: Yeah.
44:18
SPEAKER_03: Yeah.
44:18
SPEAKER_04: Um so that's one.
44:19
SPEAKER_04: And then, you know, same concept on emerging growth status, right?
44:24
SPEAKER_04: If you're approaching that billion dollar plus market cap at at mid-year, uh if revenues have grown substantially, like you really need you you should have already been thinking about it, but if not, you know, there's still four months to go, right?
44:40
SPEAKER_04: So the FPIs fortunately have 120 days after year end.
44:45
SPEAKER_04: So um that's the the first reminder I always give, just because it's not not too late.
44:52
SPEAKER_04: But but Kevin, we we had sort of hinted at it earlier.
44:56
SPEAKER_04: I mean, the other thing that I was thinking of thinking about that maybe I'll transition over to you.
45:02
SPEAKER_04: I both the IFRS and the segment standards have changed.
45:07
SPEAKER_04: Like what do you expect coming up in this year-end reporting cycle?
45:13
SPEAKER_04: Maybe starting with GAAP, and then we can chat about IFRS too.
45:16
SPEAKER_02: Yeah, no, definitely.
45:17
SPEAKER_02: And and I it came up earlier that that we've got the changes to ASC 280 and US GAAP that companies are thinking about uh and and specifically in there, the significant segment expenses has gotten a lot of attention uh because companies companies are gonna have to include more there.
45:33
SPEAKER_02: Uh, but one interesting development on that front, on the IFRS front, because IFRS has not changed, and the standards were mostly uh I'll call it 98% converged uh before um before these latest updates on US GAAP.
45:48
SPEAKER_02: Um but but the question that came up is is one of the requirements in IFRS 8 uh is to disclose certain additional items uh that are included in in the segment profit.
45:58
SPEAKER_02: Uh and that would be material items of income or expense uh that are disclosed under IAS 1.
46:04
SPEAKER_02: And so the the IFRS Interpretations Committee, uh IFRIC for short, uh had a had a discussion on this and they actually released earlier this year an agenda decision uh on that.
46:15
SPEAKER_02: And and essentially what that agenda decision says is that is it almost similar to the the 280 requirements, that if there's material expenses in there, uh that they would they would require disclosure under existing IFRS8 requirements.
46:31
SPEAKER_02: Uh and so it's a little bit different.
46:32
SPEAKER_02: A lot of companies, I think historically have thought about those as really just being like really unusual items like restructurings or impairments or something like that.
46:40
SPEAKER_02: Uh, but but if you think about you know the common example we talk about on the US gap front, under the new standard there is going to be, you know, our company's gonna have to disclose cost of sales, because maybe that's included in the measure of profit uh and it's provided to the CODM.
46:55
SPEAKER_02: Well, the same conversation should be happening for IFRS filers.
46:59
SPEAKER_02: Uh and one difference is that is that under the IFRS Interpretations Committee uh decision, it's not there's not really this criteria of is it if is it provided to the CODM or reviewed by the CODM?
47:11
SPEAKER_02: It's just if it's in if it's a material expense that's included in the measure of profit, then uh then it will need disclosure in that footnote.
47:18
SPEAKER_02: So so a little bit of a sleeper issue, I think, for companies uh if they haven't been paying attention to that.
47:24
SPEAKER_02: Uh and and certainly we have definitely we have guidance published out there uh on that.
47:30
SPEAKER_02: And so, but that's that's near term, right?
47:33
SPEAKER_02: Like this, and it's not your typical standard setting, but this is instead an interpretation and those those decisions are are really meant to be applied uh immediately.
47:42
SPEAKER_02: There's not really transition given for those.
47:45
SPEAKER_02: Um but maybe because I feel like whenever we talk about segments now, we also talk about like other disaggregated expenses and other disaggregated information.
47:54
SPEAKER_02: So so Patrick, maybe I'll flip it back to you uh because I think this year brought us the the issuance of IFRS 18, uh, which is good stuff, another one that's gonna have a lot of impacts.
48:05
SPEAKER_04: Yeah, it and IFRS 18, it's not mandatorily effective until 2027.
48:13
SPEAKER_04: But when you look at the calendar, we're already in December of 24.
48:17
SPEAKER_04: Well, that means the furthest year back in an SEC filing that IFRS 18 is going to be applied is 2025.
48:26
SPEAKER_04: Well, we're already there, right?
48:28
SPEAKER_04: And yeah, IFRS 18, it it has it it has a lot of tentacles to it, both from a core finance statement presentation standpoint as well as the disclosures.
48:40
SPEAKER_04: And probably the two most notable things for me is the uh income statement, which you know has had a traditional format for a long time, is gonna look different now under IFRS.
48:54
SPEAKER_04: It's gonna be more like a cash flow presentation with operating, financing, investing activities.
49:00
SPEAKER_04: So that's gonna be a big change in format for registrants.
49:05
SPEAKER_04: Um and then um you you also have in the disclosures this concept of management performance measures, right?
49:14
SPEAKER_04: And what are management performance measures?
49:17
SPEAKER_04: Well, the way IFRS has defined them is if you provide to the marketplace, and normally most FPIs do this on a Forum 6K, a press release with your quarterly financial information, and it has other non-gap, if you will, measures of management performance, those measures that were broadly distributed and provided to investors and users of the financial statements, they need to be reported in the footnotes to the IFRS financial statements.
49:51
SPEAKER_04: So that raises all sorts of questions with respect to, you know, hey, if I were an FPI and I in my 6K provided maybe 10 management performance measures, but in my SEC filings, maybe only two.
50:07
SPEAKER_04: Do I change that?
50:09
SPEAKER_04: And do I only show two now?
50:10
SPEAKER_04: Do I show all 10?
50:12
SPEAKER_04: Do I do something in between a lot of complex things for registrants to think through?
50:19
SPEAKER_04: And I think, you know, hey, the standard hasn't been out there, the regulator hasn't had the chance to review filings.
50:27
SPEAKER_04: I think it's going to be an area in the future that's going to be right for SEC comment.
50:32
SPEAKER_03: Um, I look, I think, I think that's a great point.
50:36
SPEAKER_03: And I think your point about getting ready now obviously makes a ton of sense in this space, considering the impacts to the earliest period.
50:43
SPEAKER_03: And and it you you'd say, well, you know, we always recommend people do dry runs of newest standards or whatever.
50:49
SPEAKER_03: And this this is one truly that you're gonna need to be paying attention to and pay attention to it to now.
50:54
SPEAKER_03: But I guess I guess before we move on and kind of the wanting to wrap on this uh conversation, I wanted to each of you so spend a minute on each of these these remaining topics.
51:06
SPEAKER_03: So, Kevin, I want you to talk a little bit about climate, CSRD.
51:09
SPEAKER_03: You know, obviously Patrick talk about kind of the the SAB topic 4C issue, and then uh we'll close out with the inflation.
51:16
SPEAKER_03: Um, but I want to see if we can hit them pretty quickly.
51:19
SPEAKER_03: But Kevin, we'll turn it to you first.
51:21
SPEAKER_02: Yeah, so so the we have plenty of podcasts on what CSRD is.
51:25
SPEAKER_02: So I won't do that.
51:26
SPEAKER_02: Uh and and great podcast on that.
51:29
SPEAKER_02: But one of the questions that comes up a lot is what are what's going to be the impact on SEC reporting?
51:34
SPEAKER_02: So so I I think the big thing is the big punchlines are one, we don't think that you will need to take your CSRD reports and attach them or or put them into your into your SEC filings.
51:47
SPEAKER_02: Uh, but it is always uh important to remember that the SEC disclosure rules require disclosure of material items.
51:54
SPEAKER_02: Uh and so just as you would anything else, as you're going through your CSRD process and and making conclusions on material climate matters or or material other sustainability matters, uh you know, certainly revisiting uh does any of this warrant disclosure in the SEC filing?
52:10
SPEAKER_02: That's a good point.
52:11
SPEAKER_02: Um and and that could be in this year end filing or or future ones as well.
52:16
SPEAKER_02: But um certainly uh you know, I don't think that we would necessarily recommend that you you take the full CSRD report.
52:23
SPEAKER_02: There could be implications associated with that uh of putting that into the 20F, um, but but certainly thinking about are there material items that should be disclosed.
52:32
SPEAKER_04: Yeah, the the just to add one thing to what you said there about CSRD reports in a 20F, to the extent a registrant's thinking about that, make sure you're talking to whoever provided assurance over that report to make sure they're comfortable about two things.
52:51
SPEAKER_04: One, that if that report goes into an SEC filing, it's likely that it won't be under PCOB or AI CPA standards.
53:01
SPEAKER_04: And are they comfortable with that?
53:03
SPEAKER_04: And oftentimes those reports are limited assurance, so not a lot of assurance.
53:08
SPEAKER_04: Are they comfortable being called an expert and consenting to that information if that's required?
53:15
SPEAKER_04: I think those are two things that are of utmost importance related to the CSRD reports.
53:22
SPEAKER_04: The reason I wanted to talk about SAB Topic 4C is IPOs are ticking up.
53:28
SPEAKER_04: And I have seen recent interpretations through the comment letter process from the staff that companies that have, like right before effectiveness of the IPO, a change in capital structure, that the SEC actually telling an IFRS registrant, hey, you have to push that capital structure change.
53:49
SPEAKER_04: Think of stock split, right?
53:50
SPEAKER_04: You have to push that stock split back in your SEC filing, even though the opinion on the IFRS financial statements has already been issued.
53:59
SPEAKER_04: We talked to the staff about that recently in a company example, and they said, yes, please retrospectively revise the financial statements and dual date the auditor's opinion.
54:12
SPEAKER_04: And given that recent experience, I thought it was good to highlight because IPOs are heating up.
54:18
SPEAKER_02: Yeah, yeah.
54:18
SPEAKER_02: Yeah.
54:18
SPEAKER_02: Yep.
54:19
SPEAKER_02: Uh and then lastly, inflation, just because it's another one of those uh issues that's top of mind for everybody, certainly warrants discussion in MDNA and elsewhere in the filing.
54:29
SPEAKER_02: Um, but but also, you know, if you happen to operate in a country that is highly inflationary or hyperinflationary, depending on your on your gap, uh, then uh that can have some pretty significant impacts.
54:41
SPEAKER_02: Uh, and again, with very short, uh, with a very short notice.
54:44
SPEAKER_02: So make sure you're paying attention there uh in terms of countries that may be considered highly inflationary uh or approaching that status.
54:53
SPEAKER_03: Definitely a lot to digest before year end.
54:56
SPEAKER_03: And and final question for you both.
54:59
SPEAKER_03: Kevin, I'll start with you.
55:00
SPEAKER_03: You guys have kids that are, you know, in college, uh doing lots of different things, but what what what are the plans for the for the holidays?
55:07
SPEAKER_02: Uh yeah, no, I for me it's it's pretty basic, but I I enjoy that.
55:11
SPEAKER_02: Uh we're gonna, you know, just some good, good quality family time.
55:14
SPEAKER_02: My son will be home from college for, I think we'll get him for like a month.
55:18
SPEAKER_02: Uh so uh that'll be nice.
55:20
SPEAKER_02: The beauty of college, a nice long break.
55:22
SPEAKER_02: Yep, yep.
55:22
SPEAKER_02: And uh I and uh his sister will enjoy having him home as well.
55:26
SPEAKER_02: So it's just gonna be nice to have everybody back in the house.
55:28
SPEAKER_04: And yeah, similar for me.
55:31
SPEAKER_04: My uh my daughter will be coming home from the University of Virginia.
55:36
SPEAKER_04: So that's that's exciting to have her home for a month.
55:40
SPEAKER_04: And one very interesting thing this holiday season, my mother has lived in Florida for the last 30 years, has decided to re-migrate up north.
55:48
SPEAKER_04: So we'll we'll be helping her move in.
55:51
SPEAKER_04: But we're really looking forward to we're we're looking forward to spending the holidays with her.
55:56
SPEAKER_03: Oh, fantastic, fantastic.
55:57
SPEAKER_03: Well, Kevin, Patrick, thank you both.
55:59
SPEAKER_03: Really appreciate your time.
56:01
SPEAKER_03: Thanks.
56:01
SPEAKER_03: Thank you.
56:03
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56:25
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