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SEC now: Recent developments shaping today’s landscape · PwC's accounting podcast

• 0:00
  SPEAKER_03: Thought Leadership from PWC's National Office.
• 0:09
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:12
  SPEAKER_01: I'm Kyle Moffitt, PWC's Professional Practice Group Leader, and your guest host for today.
• 0:18
  SPEAKER_01: Today we're taking a fresh look at the SEC reporting and regulatory landscape, including the latest proposals, evolving perspectives, and what may be coming next.
• 0:27
  SPEAKER_01: Joining me today are Scott Feely, a deputy chief accountant in PWC's National Office, and Lindsay McCord, a partner in PWC's National Office who also served more than 15 years at the SEC.
• 0:39
  SPEAKER_01: Scott and Lindsay, welcome.
• 0:41
  SPEAKER_01: I'm really looking forward to this conversation.
• 0:43
  SPEAKER_01: It's certainly been a busy year for the SEC so far, so obviously a lot to talk about today.
• 0:49
  SPEAKER_01: The last time we had this, you know, talked uh about the SEC reporting landscape.
• 0:54
  SPEAKER_01: We were in the midst of a U.S.
• 0:55
  SPEAKER_01: government shutdown, obviously, um, you know, not a lot going on from that perspective.
• 1:00
  SPEAKER_01: But since then, we've seen a flurry of activity from the SEC.
• 1:04
  SPEAKER_01: Um, you know, as you'll recall, and I know we'll talk a little bit about this today, but you know, the SEC obviously has put out a number of proposals.
• 1:11
  SPEAKER_01: You know, we did host Jim Maloney, the director of the Division of Corporation Finance, um, earlier uh this year, talked a little bit about some of what they're doing, uh, some of their focus, but the the primary focus was on the semi-annual reporting um rulemaking.
• 1:26
  SPEAKER_01: Um but today I want to dive a little deeper into kind of talking more about what we're seeing, what we're hearing from the SEC, um, kind of get some some of the reactions on uh what we've heard from the from the public, the commenters on some of these rulemakings, um, and certainly want to get your your thoughts kind of at the end over kind of comment letters what we're seeing there.
• 1:44
  SPEAKER_01: Um so start with you, Lindsay.
• 1:48
  SPEAKER_01: Obviously, some recent developments on the SEC's rulemaking agenda.
• 1:51
  SPEAKER_01: You know, the SEC does publish a rulemaking agenda, usually does it twice a year.
• 1:55
  SPEAKER_01: Looks like they're doing it now once a year.
• 1:57
  SPEAKER_01: We'll see what happens in the future.
• 1:59
  SPEAKER_01: But uh, I'll start with you.
• 2:00
  SPEAKER_01: You talk a little bit about what's on that rulemaking agenda.
• 2:04
  SPEAKER_02: Great.
• 2:04
  SPEAKER_02: Thank you, Kyle, for having both of us too.
• 2:06
  SPEAKER_02: Um, so the as you mentioned, the spring reflex agenda just was published last week.
• 2:12
  SPEAKER_02: And the interesting thing to note was that they did not bother publishing a fall one at all.
• 2:16
  SPEAKER_02: Um, I wouldn't say that the agenda that came out was much different than what we saw a year ago, what the spring 2025.
• 2:23
  SPEAKER_02: There's 38 topics on it.
• 2:25
  SPEAKER_02: We're not gonna cover all of them today.
• 2:27
  SPEAKER_02: We'll focus on the ones that, you know, make the difference for our listeners.
• 2:31
  SPEAKER_02: And there's several that are probably more suited for the attorneys that we work closely with to address.
• 2:37
  SPEAKER_02: Um, but what I found was kind of interesting out of the 38, 14 are ones that the Division of Corporation Finance is going to cover.
• 2:45
  SPEAKER_02: And for us, that's really matters because a lot of our clients are the ones that are being reviewed.
• 2:50
  SPEAKER_02: Those are the disclosure requirements they have to provide.
• 2:53
  SPEAKER_02: Um and all the topics in this agenda are very consistent with the themes we've heard from Chair Atkins during his administration.
• 3:01
  SPEAKER_02: You know, the focus of capital formation, simplification, modernization.
• 3:05
  SPEAKER_02: And obviously, the most important one that I think we'll mention a few times today is the consideration of materiality.
• 3:11
  SPEAKER_02: Um, so right now, of the ones, the 14 that Division Corporation Finance has actually on their agenda, we've already seen four proposals out of that.
• 3:20
  SPEAKER_02: That's a pretty significant one to your point of they're going to be moving quickly.
• 3:24
  SPEAKER_03: Yes.
• 3:24
  SPEAKER_02: They've already been moving quickly.
• 3:26
  SPEAKER_02: So we'll cover some of those.
• 3:27
  SPEAKER_02: But then also there's some to come that I think our audience also would be interested in.
• 3:32
  SPEAKER_02: And those are the ones related to disclosure requirements.
• 3:35
  SPEAKER_02: So, you know, your rationalization of disclosure practices, both regulation S X and SK, um, executive compensation disclosure reform.
• 3:42
  SPEAKER_02: And then last, you know, they can't really take credit in the agenda for the foreign private issuer concept release because they've now moved it to proposal stage.
• 3:51
  SPEAKER_02: And so there's also that the foreign private issuer eligibility enhancements.
• 3:55
  SPEAKER_02: But that's kind of what's gonna set the stage for maybe our discussion, but also just what we're gonna see from the SEC in the next year.
• 4:00
  SPEAKER_02: Yeah.
• 4:01
  SPEAKER_01: So so it's it's interesting as you're talking about executive compensation.
• 4:04
  SPEAKER_01: I'd I'd say that that one when you talk to the C-suite, that that's one they're they're uh, my perspective, one they're really, really interested in.
• 4:10
  SPEAKER_01: Like what's the SEC gonna do?
• 4:12
  SPEAKER_01: Um, and obviously I think a lot of these are more, you know, better suited for the attorneys to to talk a little bit more about.
• 4:19
  SPEAKER_01: But obviously, we have a we have a lot really to I think unpack with with the things that I think, you know, the things we've seen so far.
• 4:25
  SPEAKER_01: Obviously, the the first of which is semi-annual reporting.
• 4:29
  SPEAKER_01: Um, you know, you guys both, you know, you're interacting a lot with clients, you know, having conversations with the audit committee members.
• 4:35
  SPEAKER_01: Um, I know I've had a lot of conversations with um with folks um from the C-suite audit committees, um, really interested in in kind of what we're hearing, what we're seeing.
• 4:44
  SPEAKER_01: Scott, you spent a lot of time on this in your capacity as part being part of the the CA Center for Auto Qualities uh SEC Regulations Committee, because there is a letter that they have submitted.
• 4:55
  SPEAKER_01: Um but then you also you know spent a lot of time, you kind of had the pen with respect to some of the other stuff.
• 5:01
  SPEAKER_01: So semi-annual reporting is has been something you've worked on from a PDBC perspective.
• 5:06
  SPEAKER_01: So what are we hearing from companies on proposal?
• 5:08
  SPEAKER_00: Yeah, so maybe maybe I'll start with um just a uh reset with a bit of the basics.
• 5:13
  SPEAKER_00: And we've got a lot of content out there on semi-annual reporting already, so I'll try not to rehash everything.
• 5:17
  SPEAKER_00: Some dedicated podcasts, certainly our letter is available publicly that people can go and go and read.
• 5:22
  SPEAKER_00: The CAQ's letter is available publicly, et cetera.
• 5:24
  SPEAKER_00: But I mean the the basics of the of the proposal are pretty pretty straightforward, right?
• 5:28
  SPEAKER_00: So it creates an optional semi-annual reporting framework, um, which really you know is is anchored and is the same as the existing 10Q framework, except as it relates to frequency of reporting, right?
• 5:40
  SPEAKER_00: So the semi-annual will be exactly what it sounds like, um, whereas, and that's the 10S model, 10 Q model would contemplate three 10Qs a year, which is which is status quo.
• 5:50
  SPEAKER_00: Um I would say just generally speaking, feedback has been pretty consistent with what we might have expected.
• 5:55
  SPEAKER_00: I would say, you know, preparers are generally supportive.
• 5:58
  SPEAKER_00: And I would say they're generally supportive without, you know, maybe being um, you know, committal around what they actually intend to do.
• 6:05
  SPEAKER_00: They're just generally supportive.
• 6:06
  SPEAKER_01: Because some may not know what they intend to do, right?
• 6:10
  SPEAKER_01: Of course, to do.
• 6:11
  SPEAKER_00: But they're supportive of the flexibility that it creates for companies to find their own find their own reporting model, right?
• 6:17
  SPEAKER_00: What works for them and their investors.
• 6:19
  SPEAKER_00: Um investors, I would say, generally opposed, and I would say the profession more broadly, certainly PWP PwC, you know, I would characterize our stance on it as pretty pretty neutral, right?
• 6:28
  SPEAKER_00: Yeah.
• 6:28
  SPEAKER_00: We've said we're not really best positioned to decide, you know, what investors need or want um from a reporting standpoint, but we've hit a couple of um maybe uh uh key themes in our in our comment letter.
• 6:42
  SPEAKER_00: So the first is just around the importance of reliable financial reporting, right?
• 6:45
  SPEAKER_00: So no matter what format you put into the marketplace or what cadence you put it out into the marketplace pursuant to, should be reliable, right?
• 6:54
  SPEAKER_00: And I think it's just foundational, I would say, for the US um for the US capital markets.
• 6:59
  SPEAKER_00: Um and and then we hit um a couple of there's knock-on impacts, of course, right?
• 7:05
  SPEAKER_00: Like we've got an entire system that is built on quarterly reporting.
• 7:09
  SPEAKER_00: And so, you know, there are some knock-on impacts that contemplate, you know, in a in a uh 10s model where you're not doing perhaps a full set of interim financial statements, you know, auditors under existing standards would be precluded from doing review-level assurance work on financial data, I'll call it.
• 7:28
  SPEAKER_00: Right.
• 7:29
  SPEAKER_01: Something that is other than a each quarter, not the 10S, not the semi-annual period.
• 7:34
  SPEAKER_01: But just done a complete set of financial statements.
• 7:37
  SPEAKER_00: Exactly, exactly.
• 7:37
  SPEAKER_00: So that may create a challenge.
• 7:38
  SPEAKER_00: You may have governance bodies or controllership organizations that you know want that level of work done on the data they're gonna put into the marketplace, but you know, it would be difficult to obtain it today without um preparing that full set of um interim financial statements.
• 7:53
  SPEAKER_00: And then of course, it's been often talked about the comfort letter question and you know, how's the comfort letter going to function in a semiannual reporting framework?
• 8:02
  SPEAKER_00: You know, our letter, um, I think the CAQ's letter and and and maybe some of the other firms just um they they hit the idea that you know the the existing audit standards around issuance of comfort letters in connection with capital raising transactions, they can accommodate and do today accommodate a semi-annual reporting framework.
• 8:21
  SPEAKER_00: Um recall that in the former private issuer world, we have something that looks like a semi-annual reporting framework.
• 8:28
  SPEAKER_00: Um and there are you know adaptations that I would say get get made in the course of um the process across, you know, whether it be audit firms, issuers, um, underwriters, et cetera, that um adapt to a semi-annual reporting framework.
• 8:42
  SPEAKER_01: Put a pin in that one.
• 8:43
  SPEAKER_01: So so that's that's the one area I think that we've we obviously have had a lot of conversations with with companies about.
• 8:49
  SPEAKER_01: And I think the the big piece here, and this is something that that I heard from somebody at the SEC, is you know, as you're thinking about the capital raising transaction, if you've adopted or gone, if you plan to adopt this 10S, assuming all of this moves forward, right, and you are going to put information on on you know in an earnings release furnished, and you don't plan to have an interim review conducted, right?
• 9:12
  SPEAKER_01: But that's something you're it you're probably gonna want to make sure that you're ahead of and schedule it in advance if you plan to have a capital raising transaction.
• 9:19
  SPEAKER_01: And wanting to make sure, like now, council certainly is going to be aware of it, but is the auditor aware of it, right?
• 9:26
  SPEAKER_01: Like communicating the company communicating with the auditor timeline, like, hey, we're looking to do this.
• 9:31
  SPEAKER_01: Anything we need to be thinking about if you're the company, company management, because that's something that could, I think, surprise.
• 9:36
  SPEAKER_00: Certainly.
• 9:36
  SPEAKER_00: Yep.
• 9:37
  SPEAKER_00: And I'll just make one other point on the comfort letter question, which is that you know, the I think sometimes there's a perception in the marketplace that auditors would be precluded from issuing a comfort letter in a semi-end reporting framework.
• 9:48
  SPEAKER_00: And it's really not what this boils down to, right?
• 9:51
  SPEAKER_00: It's really a question of what words and what level of comfort will go into a comfort letter.
• 9:54
  SPEAKER_00: So we don't need to dive into that here, but there's a nuanced question, right?
• 9:58
  SPEAKER_00: There's not a question about whether a comfort letter can get issued.
• 10:00
  SPEAKER_01: Yeah.
• 10:00
  SPEAKER_00: It's a question about the content of the comfort letter.
• 10:02
  SPEAKER_00: The last thing I was gonna hit, Kyle, and then I'll turn it back to you, was um, you know, we we also hit this concept of what I'll call root cause broadly, um, which is, you know, if you start thinking about you know a perceived burden as it relates to you know quarterly reporting in the marketplace, there's three possible broad sources of that.
• 10:20
  SPEAKER_00: So one is certainly cadence, right?
• 10:21
  SPEAKER_00: Having to do it three times a year versus once.
• 10:24
  SPEAKER_00: Um but two other possible sources, one being line item requirements of Form 10 Q itself.
• 10:29
  SPEAKER_00: And then the third being the level of disclosure that you have in the interim financial statements.
• 10:35
  SPEAKER_00: And recall that you certainly have Article 10 that governs, but the FASB also mandates a level of disclosure in interim financial statements.
• 10:42
  SPEAKER_00: And you know, when you get out and talk with clients, it seems like you know, different clients were impacted in different ways, but there are a lot of clients who think that a big portion of this burden that we're talking about actually originates from the level of disclosure that has to go into a full set of interim financial statements.
• 11:00
  SPEAKER_00: Right.
• 11:01
  SPEAKER_00: And so we've just highlighted that as something for the SEC and perhaps the FASB to focus on as they go forward.
• 11:06
  SPEAKER_01: Yeah.
• 11:07
  SPEAKER_01: So yeah, and that's one of the things, obviously, that that Commissioner Hester Peirce had highlighted, right?
• 11:11
  SPEAKER_01: Is hey, like have has anyone done a look at the disclosure requirements, disclosure obligations, obviously Regulation SK in that context of what's in the non-financial part, but then also the FASB looking at you know some of the some of their standards and and thinking about some of those because what we've seen with some of those standards is more more information, right?
• 11:30
  SPEAKER_01: More data points, more on a quarterly cadence.
• 11:33
  SPEAKER_01: With the most recent accounting standards we've seen more.
• 11:35
  SPEAKER_02: But I I think we were talking right before this that we noticed that the FASB was going to do some research and explore something here.
• 11:42
  SPEAKER_02: That's kind of a more new development of not exactly sure what, but at least it sounds like they're hearing.
• 11:49
  SPEAKER_01: Yeah.
• 11:49
  SPEAKER_01: So so you know, heard a little bit about, you know, obviously we talked about what people call easing the burden, right?
• 11:55
  SPEAKER_01: And I I'd like to say not necessarily the the burden, but the disclosure obligations that a that a company has today.
• 12:03
  SPEAKER_01: Um and obviously we've seen, you know, over the years, you know, the the it kind of go back and forth based on who is you know in leading the administration, who's in the White House, right?
• 12:13
  SPEAKER_01: Um right now we've seen that pendulum swing.
• 12:15
  SPEAKER_01: And so so Lindsay, I'm gonna turn to you a little bit and talk, and and you know it's great now that this is a proposal.
• 12:21
  SPEAKER_01: I'm sure when you were at the SEC, there's something that was kind of always being uh talked about and thrown around.
• 12:25
  SPEAKER_01: But um, can you talk a little bit about just the the what the filer status proposal looks like and dive into that for us?
• 12:32
  SPEAKER_01: Sure.
• 12:32
  SPEAKER_02: Yeah, so the filer status proposal, I think the last time we were all together, both Scott and I said the SRC definition was the one thing we would love the SEC to take and try to reform since the complexity that it's caused, and we just spent a lot of hours, a lot of meetings talking about it.
• 12:49
  SPEAKER_02: So this proposal excites me personally for that reason.
• 12:52
  SPEAKER_02: Um so I would say one thing that's different about this proposal than what we saw the last time SRC definitely.
• 12:59
  SPEAKER_01: We were at the SEC at the last time.
• 13:01
  SPEAKER_02: I should not use acronyms, but smaller reporting company, SRCs, um, that was addressed in 2018.
• 13:06
  SPEAKER_02: And then large accelerated filer and accelerated filer were addressed in 2020.
• 13:11
  SPEAKER_02: So that's not that long ago.
• 13:13
  SPEAKER_02: I mean, yeah, over five years, but not over 10.
• 13:16
  SPEAKER_02: Um but when those rulemakings were addressed, they added the revenue test.
• 13:21
  SPEAKER_02: And that's one of the things that has added the most complexity with this rule.
• 13:26
  SPEAKER_02: Everyone was wondering what is revenue depending on your type of sector, that sort of thing.
• 13:30
  SPEAKER_02: Um, so now fast forward, no revenue test.
• 13:33
  SPEAKER_02: Yay, we've well, if this gets adapted.
• 13:35
  SPEAKER_02: Um I will say they really simplify by saying the determination of your filer status is strictly going to be based on a public float.
• 13:44
  SPEAKER_02: And then they went a step further, which again I'm so grateful for of the transition.
• 13:49
  SPEAKER_02: It used to be, you know, well, today it is 80% of a threshold you had to calculate and are you in or out.
• 13:56
  SPEAKER_02: Now it's okay, we have this public float threshold.
• 13:59
  SPEAKER_02: That's all you have, and you have to stay above or below for two years in a row.
• 14:04
  SPEAKER_02: And that's how you know you're pretty simple.
• 14:06
  SPEAKER_02: Yeah, yeah.
• 14:07
  SPEAKER_01: That's a positive.
• 14:08
  SPEAKER_01: That's a positive.
• 14:09
  SPEAKER_02: So those are like two simplifications.
• 14:10
  SPEAKER_02: The other place that I think um they've simplified is previously, I know everyone talks about filer status, and they say it in the ways of emerging growth companies, smaller reporting companies.
• 14:22
  SPEAKER_02: To me, those are always more reporting or disclosure status.
• 14:25
  SPEAKER_02: Because both of those provided disclosure accommodations because you were that, plus you were a filer status, which was today your large accelerated filer, accelerated filer, and non-accelerated filer.
• 14:36
  SPEAKER_02: So they simplified that.
• 14:37
  SPEAKER_02: So when it comes to disclosure status, you only have in this proposal emerging growth company status.
• 14:43
  SPEAKER_02: That is a Dodd-Frank mandate.
• 14:45
  SPEAKER_02: The SEC cannot eliminate that, but smaller reporting companies status is eliminated in this proposal.
• 14:54
  SPEAKER_02: And the other piece is the filer status.
• 14:57
  SPEAKER_02: We went from three, the large accelerated filer, non-accelerated filer, and accelerated filer, and they eliminated accelerated filer out of this.
• 15:05
  SPEAKER_02: Which again, all of this simplifies what am I, which boxes am I checking on my front cover?
• 15:11
  SPEAKER_02: We have two less boxes.
• 15:13
  SPEAKER_02: You don't have a smaller reporting company status box, and you don't have an accelerated filer status box.
• 15:17
  SPEAKER_01: But there's plenty of check boxes in the let's just make that clear.
• 15:20
  SPEAKER_00: Well, I just want to come in with one on the 10S.
• 15:23
  SPEAKER_01: That's simple to have one.
• 15:25
  SPEAKER_01: So there you go.
• 15:26
  SPEAKER_01: But I think what we're hearing is this particular piece.
• 15:29
  SPEAKER_02: The auditor attestation of internal controls over financial reporting, it being eliminated for anyone that's not a large accelerated filer is going to be the big ticket item.
• 15:38
  SPEAKER_02: And I think there's going to be some debates in the comment letter of how much would people have still hire someone to do a kicking of the tires or maybe.
• 15:47
  SPEAKER_02: And the one thing that's not changing on that is management's assessment of internal controls over financial reporting.
• 15:53
  SPEAKER_02: That is still going to be around.
• 15:54
  SPEAKER_02: 4-4A does not go away, and management's going to have to certify those internal controls.
• 16:00
  SPEAKER_01: But but the but, but the big but, right, is what we've heard with all three.
• 16:04
  SPEAKER_01: Uh there's also register offering for reform.
• 16:06
  SPEAKER_01: But these two that we've already talked about, they're kind of all one complete package.
• 16:10
  SPEAKER_01: So you you potentially, if you are electing this 10S option and you're not going to do something on a quarterly basis, then you you may not be doing management's, you know, or at least the DCMP, the ICFR, we've heard people talk about it.
• 16:24
  SPEAKER_01: But as far as that you would have those two quarters that you're going to kind of lose out on that.
• 16:28
  SPEAKER_01: Granted, you still have the 10 S and the year end, you still have the but the year-end obligation stays the same to your point.
• 16:34
  SPEAKER_03: Yes.
• 16:34
  SPEAKER_01: But it's it that's one of the that's kind of the the rub there is do you have the opportunity if you have identified an issue historically, let's say as of 331, now you have two more periods to kind of figure out, remediate.
• 16:48
  SPEAKER_01: Well, you may not have that if you figure you identify an issue at you know at 10S and then you get to year end.
• 16:54
  SPEAKER_02: And I think that's why it's gonna be so individually tailored by company of what they do with their internal control framework, removing an auditor testation or even the quarterly reporting, I don't think that means everyone's gonna wipe out their quarterly controls.
• 17:07
  SPEAKER_02: I think it's very much gonna be company specific, sector specific of how they run their shop.
• 17:12
  SPEAKER_01: Well, what can you talk a little bit about before before we get some some reactions from from Scott, can you talk a little bit about the data point?
• 17:20
  SPEAKER_01: So the SEC has pointed to data about the coverage, the market cap.
• 17:24
  SPEAKER_01: You talk a little bit about that, just kind of highlight what we expect to see.
• 17:29
  SPEAKER_01: I think the way that the takeaway for me on this, right, and this simplistic kind of you know, takeaway is there would be far fewer companies that will have this required stocks for if we'll be audited by the internal auditor, right?
• 17:44
  SPEAKER_01: Obviously that's good, that's definitely peaking the interest already of investors, um, of analysts.
• 17:50
  SPEAKER_01: Can you talk a little bit about like what what they've said um as far as the impacts and the coverage they'll they'll expect to have?
• 17:57
  SPEAKER_02: So on the larger accelerated filer definition changing, one thing I failed to mention was that the public float that's changing is it's going from 700 million to 2 billion.
• 18:05
  SPEAKER_02: Yep.
• 18:06
  SPEAKER_02: And that's it seems dramatic to a lot of people.
• 18:09
  SPEAKER_02: But what the SEC provided in the proposal was the last time that threshold was set, it was um based that it covered 95% of the public market cap.
• 18:20
  SPEAKER_02: And while it was only like 20% of the total number of or volume of issuers made up that 95%, it kind of just the$2 billion realigns back to that.
• 18:30
  SPEAKER_02: It had increased over time, where it was more than 94%.
• 18:34
  SPEAKER_02: They were covering closer to the 35% of total registrants were large salary filers.
• 18:39
  SPEAKER_02: So this realignment from 700 million to 2 billion, whether that's going to be the final number, we don't know.
• 18:45
  SPEAKER_02: But they put out there that part of that still, that 2 billion still covers at the time of the proposals.
• 18:51
  SPEAKER_02: I will clarify 95% of the public market cap.
• 18:55
  SPEAKER_02: Now we know that there's been or there is, we've heard in the news, there's more major IPOs to come this year.
• 19:02
  SPEAKER_01: So I do think we've already seen a significant IPO, right?
• 19:05
  SPEAKER_01: So we will continue to see probably more that are going to be very large.
• 19:09
  SPEAKER_01: And if they wind up being in the trillion dollar range, then that number, this what is it, 93.5% or whatever the number is, will go of market cap being covered by SOX 404B will potentially fall.
• 19:21
  SPEAKER_01: So to what level that goes?
• 19:23
  SPEAKER_02: And I think that's important because the other piece that um I should have mentioned earlier was that the definition of a large accelerated filer, not only is the$2 billion happening, but the more important thing that I think for companies seeking to go public and really the focus of capital formation, the focus of the Jobs Act with emerging growth company status, is that you cannot meet the definition of a large accelerated filer for the first five years after being public.
• 19:48
  SPEAKER_02: Right.
• 19:49
  SPEAKER_02: Yeah.
• 19:49
  SPEAKER_02: So right now it's one year of full reporting.
• 19:52
  SPEAKER_02: Right.
• 19:52
  SPEAKER_02: It's they're proposing to move to five years.
• 19:54
  SPEAKER_02: So any of these new trillion dollar IPO companies, they would have five years of ay will not be a large accelerated filer.
• 20:02
  SPEAKER_02: Well, we said the small reporting company uh definitions going away.
• 20:06
  SPEAKER_02: The accommodations of a smaller reporting company and the accommodations for emerging growth company essentially are going to be given to a non-accelerated filer.
• 20:13
  SPEAKER_01: As I kind of said, Scott, you know, you know, this is something that that we we we've already been hearing a lot about it, right?
• 20:20
  SPEAKER_01: And and I think it's it certainly is something that we'll continue to see comments.
• 20:24
  SPEAKER_01: But I mean, what what are some of the questions that we're getting from clients?
• 20:29
  SPEAKER_01: Like, what are we seeing?
• 20:30
  SPEAKER_01: Or, you know, or like are are there concerns?
• 20:34
  SPEAKER_01: Um, and I think, you know, obviously I can tell you like when you look, when I look at, you know, you know, things in the press, or I like obviously you see this as being highlighted.
• 20:45
  SPEAKER_00: Um Yeah, so I want to go back to just one or two points, then I'm gonna and then I'm gonna I will answer the question that you asked me, I promise.
• 20:52
  SPEAKER_00: Okay.
• 20:52
  SPEAKER_00: So I was just gonna hit, I mean, and I know we we broadly just hit it.
• 20:56
  SPEAKER_00: So 404B, we think is the most consequential accommodation that you know this new non-accelerated filer will will enjoy, but there's a laundry list of accommodations, right?
• 21:06
  SPEAKER_00: It goes from Rule 309 under Regulation SX, risk factors, um executive compensation, quantitative and qualitative disclosure about market risk, executive compensation.
• 21:15
  SPEAKER_00: So there is a lot other than what we've really specifically covered here.
• 21:19
  SPEAKER_00: I would also highlight it just in in uh because we think 404B is one of the more consequential impacts, we talked about moving from 700 million up to 2 billion from a public float test to qualify as large accelerated filer.
• 21:34
  SPEAKER_00: But accelerated filers today are subject to 404B, right?
• 21:37
  SPEAKER_00: And so when you think about what changes as it relates to 404B, what change is happening, you're actually moving from 75 million up to 2 billion, right?
• 21:47
  SPEAKER_00: So a really big change.
• 21:48
  SPEAKER_00: And then the third thing I would say is, and I think we started to go down this path around maybe, you know, just you know, companies with tremendous, tremendous market capitalizations going public.
• 22:00
  SPEAKER_00: I guess you know the anchor in the rule proposal is back to, you know, a a set of uh statistics in 2000 and 2005, um, where it's 95% coverage when you think about large accelerated filers.
• 22:13
  SPEAKER_00: Obviously, the the composition of the registrant base has just migrated over time such that the concentration like if you looked at the top 10 or top 20 registrants and what they contribute to the 95% in 2005 versus the 93.5% today, you're gonna see that you know the top 10 registrants or top 20 are doing a lot of the lifting as it relates to coverage, right?
• 22:40
  SPEAKER_00: So I don't know how that will impact the SEC's thinking, but they're definitely different, you know, compositions then versus um then versus now.
• 22:47
  SPEAKER_00: So now to your, I apologize, Kyle, now back to your actual question.
• 22:51
  SPEAKER_00: I I guess I would just say, you know, maybe unlike um, you know, semi-ann reporting, where you know the impact is broad and it impacts potentially every registrant, and every registrant is at least taking a look at what that proposal means for them, you know, the population of companies that are impacted by this is naturally, naturally smaller.
• 23:11
  SPEAKER_00: Um I guess I would say that you know the vast majority of what we've seen has been oriented around um companies contemplating transactions.
• 23:21
  SPEAKER_00: And I don't think I would characterize it as you know an input into whether or not they're going to go public.
• 23:27
  SPEAKER_00: We've seen, and we'll talk about it in a little bit, we've seen transaction levels you know increasing over time, irrespective of these rule proposals.
• 23:34
  SPEAKER_00: Um but you know, companies that are contemplating transactions are certainly wondering about, you know, what is the effective date going to be for this?
• 23:43
  SPEAKER_00: Right?
• 23:44
  SPEAKER_00: What are the transition provisions going to be?
• 23:46
  SPEAKER_01: And you're gonna tell us today what that date's going to be.
• 23:50
  SPEAKER_00: I've watched you for years predictions on these podcasts and be wrong every time.
• 23:54
  SPEAKER_00: So I'm gonna avoid that.
• 23:55
  SPEAKER_00: I'm going to avoid that.
• 23:57
  SPEAKER_00: Um those are the types of questions that we're getting.
• 23:59
  SPEAKER_00: They're pretty narrowly, narrowly focused and again, you know, oriented towards companies that may be contemplating um contemplating transactions.
• 24:06
  SPEAKER_00: Very few comment letters, um, very few comment letters to date.
• 24:10
  SPEAKER_00: I there's a handful from academics, you know, pretty opposed, I would say, to it and and really focused on 404B and the values.
• 24:16
  SPEAKER_01: And I've seen them also focus on the data, right?
• 24:19
  SPEAKER_01: The data being used or the studies that are being used and how the commission has referenced studies by exactly.
• 24:24
  SPEAKER_01: Yeah, so exactly.
• 24:25
  SPEAKER_00: Yep, certainly.
• 24:26
  SPEAKER_00: And then I was I was gonna hit one last point, which is just in relation to foreign private issuers.
• 24:31
  SPEAKER_00: I know Lindsay started to hit on foreign private issues a little bit earlier, and there's a you know something on the SEC, um the Red Flex agenda um that contemplates you know who gets to qualify for a foreign private as a foreign private issuer and the um I'll call it the accommodative uh reporting regime that exists over there.
• 24:47
  SPEAKER_00: Um you know, these proposals would only apply to registrants filing on domestic forms.
• 24:55
  SPEAKER_00: Okay.
• 24:55
  SPEAKER_00: And so I guess there could be some questions around whether you know, are the accommodations that may exist if this goes through as proposed are so attractive so as to incentivize certain registrants that are today foreign private issuers to opt into a domestic reporting regime.
• 25:12
  SPEAKER_00: Maybe in particular for those that are already reporting um under U.S.
• 25:17
  SPEAKER_00: GAAP.
• 25:18
  SPEAKER_01: So obviously a lot, right?
• 25:20
  SPEAKER_01: Uh you know, those are are obviously pretty, you know, I would say the areas that we've talked about most, right?
• 25:26
  SPEAKER_02: I I you know, and and obviously we've taken up a lot of what the SEC is doing.
• 25:30
  SPEAKER_01: Yes, we know what the SEC is doing.
• 25:32
  SPEAKER_01: Here is where it kind of gets a little bit tricky.
• 25:34
  SPEAKER_01: And and one of the things you talked about earlier is this rationalization of disclosure practices.
• 25:39
  SPEAKER_01: And I think everyone I've talked to is like, what the heck does that even mean?
• 25:44
  SPEAKER_01: Um and I think we we probably have heard, and I think you're you're very we're we're all pretty plugged into what what the SEC is saying now.
• 25:52
  SPEAKER_01: So can you talk a little bit about what what that means, what that encompasses, and kind of where we think they're headed?
• 25:57
  SPEAKER_02: Sure.
• 25:58
  SPEAKER_02: Yeah, I want to hit on three points specifically.
• 26:00
  SPEAKER_02: Um, because they're the points that I believe that Chair Atkins has continuously said over the last year on this disclosure rationalization.
• 26:08
  SPEAKER_02: Um, so the first is materiality.
• 26:11
  SPEAKER_02: That is a theme in every remark we're hearing right now about even as of last week, right?
• 26:17
  SPEAKER_01: He said something last week about it.
• 26:19
  SPEAKER_02: Exactly.
• 26:20
  SPEAKER_02: The idea of restoring materiality as a guiding principle for SEC disclosures and giving companies the ability to rely on materiality, the same materiality in the Supreme Court ruling that we've all dealt with for years, both attorneys, accountants, preparers.
• 26:36
  SPEAKER_02: And but then they've gone a step further in their remarks to suggest this idea of a materiality overlay being added to regulation SK.
• 26:46
  SPEAKER_02: The idea that if you retain any bright line thresholds in the disclosure, you have something explicit, which kind of US Gap has something kind of explicit about, you know, if it's not material.
• 26:57
  SPEAKER_02: So I don't know if it's gonna look like that, but we have heard the SEC staff talk about a materiality overlay that seems like something actually in the rules, as opposed to today, where everyone just applies materiality.
• 27:10
  SPEAKER_01: I think which I think is very interesting when you start to think about some of the SK disclosure requirements, such as resource extraction.
• 27:19
  SPEAKER_01: You know, there's conflict minerals, there's a lot of other disclosure requirements that I think we've heard from this commission specifically that they they think is too much and then maybe goes too far.
• 27:30
  SPEAKER_01: It's it's political, it's it's issues that are outside of the financial materiality kind of lens.
• 27:36
  SPEAKER_01: So um, so that that that actually is very interesting to see kind of what what they'll do on that.
• 27:40
  SPEAKER_02: Well, and you could also retain disclosures for certain sectors and all.
• 27:43
  SPEAKER_01: Yeah, right.
• 27:44
  SPEAKER_02: And either scope it to the sector or you could also add this materiality overlay.
• 27:49
  SPEAKER_02: Yep.
• 27:49
  SPEAKER_02: And then each individual company can decide whether it's material to them and if you expect their materiality analysis.
• 27:54
  SPEAKER_02: Now, on the other side, which I wasn't gonna get to it yet, but like the investor community is more concerned about this notion of a materiality overlay.
• 28:03
  SPEAKER_02: Because in their view, they like the bright lines.
• 28:05
  SPEAKER_02: They don't want to leave it up to companies to determine what is material.
• 28:09
  SPEAKER_01: They like the idea that there's bright lines, consistent and comparable because materiality for one company could be different than materiality for another.
• 28:16
  SPEAKER_01: And I've I've heard that a lot.
• 28:18
  SPEAKER_02: Interesting, what I thought um the chair talked about last week and some other times recently was it's great, we're doing all this effort and considering principles based and materiality.
• 28:28
  SPEAKER_02: However, it's gonna mean nothing if preparers don't actually exercise their professional judgment to determine what to remove and to make the materiality.
• 28:37
  SPEAKER_02: So they can do all the rule writing they want, but if preparers retain the detailed disclosure that isn't required by the rules, or they do a bright line, then it's kind of like, well, we gave you the key, and you didn't, yeah, you didn't take advantage of it.
• 28:54
  SPEAKER_02: So I think to me, some of that was when I read that and or talked about it with others, that's something they can do today.
• 29:02
  SPEAKER_01: What he said, something like the buck stops with you, right?
• 29:04
  SPEAKER_01: To the audience?
• 29:05
  SPEAKER_01: Is that true?
• 29:06
  SPEAKER_01: I think something like that, yeah.
• 29:07
  SPEAKER_01: Yeah.
• 29:08
  SPEAKER_02: But again, it's it's all very much stuff that can be applied today.
• 29:12
  SPEAKER_02: Materiality exists today.
• 29:15
  SPEAKER_02: Companies can exercise judgment.
• 29:16
  SPEAKER_01: It can look at their findings.
• 29:18
  SPEAKER_01: They could have done they've could have done this for the last 20, 26 years.
• 29:21
  SPEAKER_02: And when there's fear of the SEC comment letter that could happen for removing, I mean, this is a great opportunity right now, not only how the rules are going to change, maybe you engage with the staff to have a discussion before you make a change.
• 29:35
  SPEAKER_02: I know when we were there, sometimes companies would want to be changing their disclosure and they preview it with us there.
• 29:42
  SPEAKER_02: I don't know if they're still doing that, but they said the doors open.
• 29:45
  SPEAKER_02: So you could do that, or the other piece of this whole exercise of professional judgment today before any rules actually are effective, is you know, if you have a well rationalized materiality argument and you're prepared to defend it, then honestly, a comment letter, the staff's not that scary.
• 30:03
  SPEAKER_02: They're open to have a dialogue.
• 30:05
  SPEAKER_01: I think that, and I think that's the great point is that a lot of what I hear from, you know, companies, preparers is well, look, we did this because the SEC told us to.
• 30:14
  SPEAKER_01: And I think back to, you know, uh 26 years ago was when I started at the SEC.
• 30:19
  SPEAKER_01: And and the approach has always been the same as, hey, if it's material, you you disclose, right?
• 30:23
  SPEAKER_01: Like that has not changed and during at least kind of my you know time.
• 30:29
  SPEAKER_01: As I think about like, you know, the staff comments, right?
• 30:33
  SPEAKER_01: Your point is a good one.
• 30:34
  SPEAKER_01: It's the staff is issuing comments, it is a dialogue.
• 30:37
  SPEAKER_01: If you disagree and you believe it's not material, you should lead with that in your response.
• 30:42
  SPEAKER_01: I think that's a key piece here that, hey, look, a lot of times companies will just roll over and disclose, but you got to be mindful that the staff is willing to listen and they're not going to require or mandate disclosures if it's not material.
• 30:55
  SPEAKER_02: Yeah.
• 30:55
  SPEAKER_02: And when they say tell us, it's they're trying to enter into the dialogue.
• 30:59
  SPEAKER_02: Um, so that was the one piece of the regulation SK I definitely want to address.
• 31:02
  SPEAKER_02: The other, just I kind of already touched on comment themes we're hearing is there is one area that everyone agrees is that regulation SK should be modernized.
• 31:11
  SPEAKER_02: So both investors, preparers, law firms, trade organizations, accountants, everyone agrees with that.
• 31:17
  SPEAKER_02: Everyone agrees we should not be doing boilerplate disclosures.
• 31:20
  SPEAKER_01: You know, I think we can all agree on that one.
• 31:22
  SPEAKER_02: So those are two good things that you know everyone agrees on, but that's kind of where it stops.
• 31:27
  SPEAKER_02: I've already talked about materiality, principles-based versus um detailed.
• 31:31
  SPEAKER_02: Some of the things that I would say I found interesting was that um there was a focus from others, non-investors, on duplication and elimination of disclosures that are overlapping with US GAAP or other places.
• 31:45
  SPEAKER_02: There's some places that commoners have actually cited, um legal proceedings, critical accounting estimates.
• 31:51
  SPEAKER_02: Those are areas that they feel US GAAP might have enough in place or market risk disclosures that maybe they could be pulled back, even eliminated.
• 32:00
  SPEAKER_02: Um, we did not see much on SX.
• 32:02
  SPEAKER_02: However, my last point I want to get to is the SEC has actually already done regulation SK and SX rulemaking in filer status and registered offering reform.
• 32:14
  SPEAKER_01: Which is a buried thing, and people aren't gonna get get that unless you take it up and look at it, right?
• 32:19
  SPEAKER_01: And see that there is something they've addressed.
• 32:21
  SPEAKER_02: So they've started at least.
• 32:22
  SPEAKER_02: Yeah, and I know it's they started on low-hanging fruit, but they've actually started doing something.
• 32:28
  SPEAKER_02: So we can't say that they've done nothing on the disclosure monetization.
• 32:32
  SPEAKER_02: And some of it is the FASB took on um some standards, adding some disclosures that the SEC had originally had in their rules, and they have an adoption date for next summer if the SEC were to eliminate those disclosures.
• 32:46
  SPEAKER_02: And so in the fire alert status, they say we will eliminate these disclosures.
• 32:51
  SPEAKER_02: And interesting enough, the topics are things that are in mostly regulation SX.
• 32:56
  SPEAKER_02: It's things about the assets related to that are pledged or or have liens on them.
• 33:01
  SPEAKER_02: It's information about preferred stock here, it's the interim EPS calculation.
• 33:06
  SPEAKER_02: Again, some US GAAP has a lot of this already.
• 33:09
  SPEAKER_02: So they went ahead and they have proposed to eliminate these handful of disclosures in Regulation S K and Regulation SX.
• 33:17
  SPEAKER_02: I'm sure there's more they can address there.
• 33:20
  SPEAKER_02: Um, but I think that that's a good sign that they're already getting a head start.
• 33:23
  SPEAKER_01: So I also want to talk a little bit about kind of what we're seeing, right?
• 33:26
  SPEAKER_01: So we hear a lot from this, the the chairman on you know making IPOs great again.
• 33:32
  SPEAKER_01: We've we've heard a lot on the reducing regulatory burdens.
• 33:36
  SPEAKER_01: Like what are we seeing, Scott, on the capital formation front?
• 33:40
  SPEAKER_01: Are we seeing a lot?
• 33:41
  SPEAKER_01: Are we seeing an uptick?
• 33:43
  SPEAKER_01: Is there anything we can attribute to this administration, or is this this is just kind of this is the way things work?
• 33:47
  SPEAKER_01: This is the way the markets work.
• 33:50
  SPEAKER_00: Well, I think there's always there's certainly always ups, ups and downs in the in the market.
• 33:53
  SPEAKER_00: I mean, I would tell you we are certainly inside of you know what we do inside of this team that reviews filings and on a on a pre-filing basis and so on and so forth.
• 34:02
  SPEAKER_00: We have certainly seen heightened levels of activity around pre-IPO companies, maybe contempl companies contemplating um D SPAC transactions, things like this.
• 34:11
  SPEAKER_00: So there's definitely been an increase in transactions in the marketplace.
• 34:15
  SPEAKER_00: The SEC is publishing pretty regularly statistics of their own on IPO-related activity.
• 34:21
  SPEAKER_00: And we we prepare some of our own statistics internally.
• 34:24
  SPEAKER_00: You can see it in all of those statistics, okay, that there's been an uptick.
• 34:28
  SPEAKER_00: Um I would tell you it's been you know reasonably consistent increase that has been taking place since call it 2023-ish, right?
• 34:38
  SPEAKER_00: And 2026 is better than you know, certainly to date is better than 2025, but that's a continuation of an existing trend.
• 34:48
  SPEAKER_00: I uh you know, in terms of sectors.
• 34:56
  SPEAKER_01: What do we talk about?
• 34:57
  SPEAKER_00: We track traditional IPOs.
• 34:58
  SPEAKER_00: We track right, SPAC IPOs separately.
• 35:00
  SPEAKER_00: I think most people do.
• 35:01
  SPEAKER_00: Yeah, exactly.
• 35:02
  SPEAKER_00: Exactly.
• 35:03
  SPEAKER_00: I I it raises an interesting point because you know it becomes pretty difficult to uh isolate, isolate the variable, I'll call it, right?
• 35:11
  SPEAKER_00: In the sense that, you know, right now, and I I said it earlier, I think we see companies that are you know saying, wow, these you know, rule proposals that are out there are pretty attractive, and you know, maybe that's gonna affect my you know go or no-go decision as it relates to you know entering the public markets.
• 35:27
  SPEAKER_00: Um but we've certainly seen um again an uptick in in volume over time.
• 35:33
  SPEAKER_00: Uh and I I guess this goes to the point I was just um making.
• 35:37
  SPEAKER_00: You know, there's another root cause conversation here.
• 35:40
  SPEAKER_00: And you know, unequivocally in the in the data, there has been a reduction in the number of companies that are functioning in the in the um in the public markets these days.
• 35:49
  SPEAKER_00: And you know, there becomes question around whether that is you know macroeconomic conditions, is it regulatory burden?
• 35:56
  SPEAKER_00: Is it availability of private capital?
• 35:58
  SPEAKER_00: Or is it you know some combination of all of the above?
• 36:01
  SPEAKER_00: What I found pretty interesting, um, and I don't know if others will find it interesting, but I I do when we talk about, you know, um, I guess I would say there's you know, maybe nominal and relative comparisons to make in the sense that you know, one of the challenges that the SEC is contemplating addressing in the foreign private issuer rule proposal is this idea that historically foreign private issuers were listed somewhere else first, and the US capital market was their second, right?
• 36:31
  SPEAKER_00: It was a secondary listing for them.
• 36:34
  SPEAKER_00: And that dynamic has, you know, it maybe disappeared over time where many comp foreign private issuers are listed only in the United States.
• 36:42
  SPEAKER_00: And so that tells you something about, I'll call it the nominal attract or relative attractiveness of the U.S.
• 36:49
  SPEAKER_00: capital markets versus some of the other capital markets.
• 36:52
  SPEAKER_00: It still appears to be right the most attractive public market in the world.
• 36:57
  SPEAKER_00: But when you go to nominal attractiveness, I guess you could sit and say, well, on a relative basis, we're better than the rest, but we could still be more attractive.
• 37:07
  SPEAKER_00: And that's maybe what the SEC is.
• 37:17
  SPEAKER_01: Yeah, they enjoy an accommodative regime already.
• 37:20
  SPEAKER_01: And I think that's kind of the point the SEC has tried to articulate over the last year and a half or so.
• 37:25
  SPEAKER_01: Yep.
• 37:25
  SPEAKER_01: Yeah.
• 37:25
  SPEAKER_01: Yeah.
• 37:26
  SPEAKER_01: And obviously, we talked a little bit about, you know, I mentioned I want to talk about comment letters very high level because I know we'll get into the weeds on common letters in a future uh video podcast or whatever it is we decide to do.
• 37:35
  SPEAKER_01: Um what are we seeing on comments?
• 37:38
  SPEAKER_01: Or are we seeing fewer comments?
• 37:40
  SPEAKER_01: Are we seeing them more focused on materiality of disclosures?
• 37:43
  SPEAKER_01: Like, you know, I know that there's been some rumblings that the SEC staff is, you know, they've lost obviously resources and so they haven't been posting, you know, timely posting like they typically would do the the correspondence once the filing review is closed, that they're behind a number of months.
• 37:59
  SPEAKER_01: And so, and obviously they've got a lot of stuff going on.
• 38:02
  SPEAKER_01: So are they really going to prioritize this?
• 38:04
  SPEAKER_01: You know, catching up, like I mean, it's a transparency, you know, thing.
• 38:07
  SPEAKER_01: That's they that's why they've done it historically.
• 38:10
  SPEAKER_01: Um even with the delay, you guys are reviewing things, you see things real time.
• 38:16
  SPEAKER_01: I think that's what are we seeing real time?
• 38:18
  SPEAKER_02: I would say there it's just such a significant delay that you can't really say there's any true trends that are different or abnormal because the comment letters being posted are really stale.
• 38:29
  SPEAKER_02: There's not much.
• 38:30
  SPEAKER_03: Yeah.
• 38:31
  SPEAKER_02: And you we know from what we see day to day, there's comments still being issued.
• 38:35
  SPEAKER_01: Yeah.
• 38:36
  SPEAKER_02: It is business as usual to some degree.
• 38:38
  SPEAKER_01: Are they posting them in order of when they were clear?
• 38:41
  SPEAKER_01: Do we know if they're posting them in order?
• 38:43
  SPEAKER_01: Are they just posting whatever they can post?
• 38:44
  SPEAKER_02: Like, I mean, I don't know if I've been able to see a full correlation of what they're doing.
• 38:49
  SPEAKER_02: Um and again, part of it is it's a process.
• 38:52
  SPEAKER_02: Like the SEC has a process for how this is done.
• 38:56
  SPEAKER_02: And it's done for more than the division of corporation finance.
• 38:59
  SPEAKER_02: There's other divisions that also publicly post their correspondence.
• 39:02
  SPEAKER_02: So it's not just corp FEN that may be behind.
• 39:06
  SPEAKER_02: So you when you have that sort of backlog, you have to think about how you're gonna approach the process for everyone.
• 39:10
  SPEAKER_02: Um, but so kind of going to more of what we're seeing that is you can't directly point anyone to publicly right now, is that oh, idea of almost business as usual.
• 39:19
  SPEAKER_02: The top four comment letter topics, mDNA, non-gap, revenue recognition, and segments has not changed.
• 39:27
  SPEAKER_02: Their ordering changes maybe every year, but that's it.
• 39:30
  SPEAKER_02: And so right now, the ordering that has changed, I would say, on the non-public is mDNA.
• 39:36
  SPEAKER_02: We have been seeing an uptick in mDNA comments that are asking for more disaggregation and underlying like factors or drivers for changes.
• 39:46
  SPEAKER_02: So if your revenue increased and you're saying, oh, it's because, you know, this product's selling more or I have this customer demand, tell me why do you have that increased demand now?
• 39:55
  SPEAKER_02: Which I mean, that's kind of a lot of people.
• 39:56
  SPEAKER_01: So it's the whole price volume point, like they've been talking about for a number of years.
• 40:01
  SPEAKER_01: Don't ignore it, right?
• 40:02
  SPEAKER_02: Like so much more detailed mDNA results of operations fluctuation disaggregation comments in the MDNA space.
• 40:10
  SPEAKER_02: Um, another place that I found interesting, again, it's under item 303 of regulation SK relates to critical accounting estimates.
• 40:17
  SPEAKER_02: Not shocking, we're seeing goodwill impairment related disclosure comments.
• 40:26
  SPEAKER_01: The market, certain sectors, there's a lot of macroeconomic conditions, geopolitical conditions that may lead to challenges with critical accounting estimates.
• 40:35
  SPEAKER_01: We've talked, we talk about it all the time.
• 40:37
  SPEAKER_01: Right.
• 40:37
  SPEAKER_02: What I think what I found more interesting was there was some of these comments were being issued to people that had significant headroom.
• 40:44
  SPEAKER_02: So there was their fair value for the reporting units was well over 20% of their um reporting unit actual net tangible assets.
• 40:54
  SPEAKER_02: So that is one place that I've just talked to people about like part of this is the SEC may not know because the disclosures under gap is you don't put what your exact fair values.
• 41:04
  SPEAKER_02: And so I've just kind of had discussions of start out the conversation, the dialogue with the SEC with what is your headroom.
• 41:12
  SPEAKER_02: Because they don't want to spend their time going back and forth with you if this truly is not an issue.
• 41:17
  SPEAKER_02: If they if you're able to provide them in your critical accounting estimate disclosure or in your response, sufficient information that you did do, if you did a fair value assessment that you considered all the factors they would expect, and then this is the headroom, you're likely to finish that comment in one round.
• 41:34
  SPEAKER_01: Yeah.
• 41:34
  SPEAKER_02: Um, so that was something else that I kind of want to point people to.
• 41:36
  SPEAKER_02: Because I think if you have significant headroom, you're not thinking you're gonna get that comment.
• 41:40
  SPEAKER_01: Yeah, I think as and I think it's important to highlight that, especially for kind of what we're seeing and where things are trending too.
• 41:46
  SPEAKER_01: So um what what what else are you are you seeing?
• 41:50
  SPEAKER_02: I mean, obviously, non-gap still is a hot topic.
• 41:53
  SPEAKER_02: Um I would say more is objections to adjustments or titling.
• 41:59
  SPEAKER_02: We're seeing more of add additional disclosures.
• 42:01
  SPEAKER_02: Okay.
• 42:01
  SPEAKER_02: But where I would say I see sometimes a concentration is those type of non-gap adjustments that carry more than one type of cost or expense items right.
• 42:10
  SPEAKER_02: So restructuring.
• 42:11
  SPEAKER_02: Yeah.
• 42:12
  SPEAKER_02: You have maybe compensation in that, you have impairments, you have various things or strategic initiatives.
• 42:17
  SPEAKER_02: Anything that involves multiple types of costs tend to get the staff's kind of, and especially if it's material, tends to get their attention and then they want to know more disaggregation of costs in there.
• 42:27
  SPEAKER_02: And they'll make a judgment call of what they feel in the cost.
• 42:29
  SPEAKER_02: Sometimes they're fine with the line item.
• 42:32
  SPEAKER_02: You just need to describe the cost better.
• 42:33
  SPEAKER_02: Or other times they're fine with you doing restructuring, but they're gonna tell you to take out one or two costs that they don't believe meets their guidance on non-gap disclosures.
• 42:43
  SPEAKER_02: Um, and last, I will just add is we're still seeing disaggregated revenue.
• 42:46
  SPEAKER_01: Because you, as you said before, people disaggregate more disclosure, more disclosure, right?
• 42:51
  SPEAKER_01: Like, and that's what the standard requires.
• 42:53
  SPEAKER_02: Well, and disaggregated revenue is an interesting one in that it's kind of principles-based.
• 42:57
  SPEAKER_02: And so again, I think that companies have their table, they are confident that they're under US GAAP, they're complying with it, but you can look at it different ways.
• 43:07
  SPEAKER_01: Business changes too.
• 43:08
  SPEAKER_01: That's the other thing.
• 43:09
  SPEAKER_02: I've just seen companies actually add a second table to address the SEC comment letter instead of going multiple rounds back and forth of why they didn't believe their table was most compliant with US GAAP than what maybe the SEC staff's suggesting.
• 43:22
  SPEAKER_02: So that's kind of where we are with comment letters of things.
• 43:25
  SPEAKER_01: Interesting.
• 43:25
  SPEAKER_01: Interesting.
• 43:26
  SPEAKER_01: So, Scott, I know you you see a lot of pre-clearance letters.
• 43:30
  SPEAKER_01: And when pre-clearance letters for the audience, you know, we're talking about you know, unique, you know, transact, you know, transactions where you know the like company is is asking for some sort of preclearance, a waiver, an accommodation to the reporting requirements of the FCC's rules, right?
• 43:47
  SPEAKER_01: Which could mean, you know, uh 309 financials.
• 43:50
  SPEAKER_01: We talk equity method investees.
• 43:52
  SPEAKER_02: Not if you're on a seller filer now.
• 43:55
  SPEAKER_01: Acquisition related financial statements, right?
• 43:57
  SPEAKER_01: Pro forma financial information.
• 44:00
  SPEAKER_01: Um are are we seeing what are we seeing there?
• 44:02
  SPEAKER_01: Are we seeing the kind of the status quo?
• 44:05
  SPEAKER_01: Things kind of the same, nothing to see here?
• 44:08
  SPEAKER_00: I think there's something to see there.
• 44:09
  SPEAKER_00: I think the the nature of what people are going in and asking for is maybe reasonably consistent with what we've seen historically, but uh there's maybe two things that have encouraged registrants to be more active on this, or maybe in some cases prospective registrants to be more active in this um in this space.
• 44:25
  SPEAKER_00: One is we're talking about transaction volumes, right?
• 44:28
  SPEAKER_00: It's often, you know, transactions, IPOs that generate these unique reporting issues where you're trying to cumulatively catch up reporting and you can contemplate um a reporting model as a non-public company, and then to enter the public capital markets, you need something that you haven't already secured.
• 44:47
  SPEAKER_00: Um so transaction volumes are certainly generating more, translating to more volume from a pre-clearance standpoint on unique reporting issues.
• 44:55
  SPEAKER_00: Um and then I would say, you know, maybe the SEC's um, you know, advertisement is maybe a strong word, but their openness to talk to, you know, registrants about unique reporting issues.
• 45:07
  SPEAKER_01: Every time we speak, we hear them say that we're open for business, come talk to us.
• 45:11
  SPEAKER_00: Exactly, right?
• 45:11
  SPEAKER_00: And so I think registrants or prospective registrants are taking them at their word and are taking them up on those offers.
• 45:18
  SPEAKER_00: And so they are um, you know, either engaging in a conversation, you know, sometimes uh uh submitting the letter, you know, right out of the gates and not engaging in a conversation first.
• 45:28
  SPEAKER_00: I mean, there's different sequencing depending on the nature of the um of the issue, but registrants are again taking them up on that on that offer.
• 45:35
  SPEAKER_00: The nature of what they're going into talking about still tends to be the same stuff.
• 45:38
  SPEAKER_00: So sometimes 309, you know, equity method investee financial statement requirements.
• 45:43
  SPEAKER_00: Uh more commonly, you know, they've made a significant acquisition and they think they're getting a strange outcome from the applic the literal application of a significance test or um, you know, an IPO environment, you know, the registrant maybe hasn't existed for a full two or three year period.
• 46:00
  SPEAKER_00: And so they go looking around to see if they have a predecessor.
• 46:03
  SPEAKER_00: And oftentimes, you know, whether they've acquired a business historically will feed that analysis.
• 46:08
  SPEAKER_00: Um, so there's a lot of a lot of that, which is the same type of stuff that we've seen for many, for many years.
• 46:14
  SPEAKER_00: Uh and I think we would give people the same advice that we've given them for many years, which is you know, robust, complete letters make the process go smoother.
• 46:24
  SPEAKER_00: If you have something when you're contemplating, you know, asking for some type of relief, if you have something that you believe you can offer in exchange that would provide investors with the information they need, you know, communicate that.
• 46:38
  SPEAKER_00: Yeah, right.
• 46:38
  SPEAKER_00: It will make the process a lot a lot smoother.
• 46:42
  SPEAKER_00: And then I was gonna say, I wrote something down here that says don't skip steps, right?
• 46:45
  SPEAKER_00: So if there are dependencies, um, you know, so when we think about predecessors, we might have to figure out whether we have a business first, right?
• 46:54
  SPEAKER_00: When we try and figure out um, you know, maybe a reporting model for a spin-off, we might have to think about whether it's a forward spin-off or a reverse spin.
• 47:04
  SPEAKER_00: So you've got to get the sequencing right, and that will help your process with Corp Fin ultimately go um go smoother as it repl relates to the actual reporting requests that you're um that you're making.
• 47:16
  SPEAKER_00: The only other point I was gonna make was um, you know, there's certain things that the the staff can't deal with.
• 47:21
  SPEAKER_00: And so maybe some of these communications around openness to engage in a conversation, you know, there can be certain requests that will will go in that you know the the staff is literally unable to even contemplate providing what's being requested.
• 47:36
  SPEAKER_00: And I would just say, you know, you ought to engage in conversations with your, you know, your external accountants, your lawyers, et cetera, before submitting those letters.
• 47:44
  SPEAKER_00: You know, for each of those letters that goes in, uh, whether they can actually do it or it takes time, right?
• 47:49
  SPEAKER_00: It takes time.
• 47:50
  SPEAKER_00: And so every letter that goes in with a request that perhaps will be granted is slowed down by something that the SEC maybe is unable, um, pursuant to their authority to address.
• 48:01
  SPEAKER_00: So people should just be cognizant of that before before sending letters in.
• 48:05
  SPEAKER_00: There are limits to what the SEC can even begin to contemplate.
• 48:08
  SPEAKER_01: Yeah, and I I don't want to, you know, obviously I think you know, we highly we're talking about the pre-clearance letters to Court Finn.
• 48:14
  SPEAKER_01: There are pre-clearance letters that also go to the office chief accountant regarding GAAP or IFRS interpretations there.
• 48:20
  SPEAKER_01: So that's also available to register.
• 48:22
  SPEAKER_01: I said I definitely would don't want people to lose sight of the that.
• 48:25
  SPEAKER_01: Um so so with that, um look, I think you know you guys have probably brought a lot of takeaways already.
• 48:31
  SPEAKER_01: Um, so I'm gonna give you kind of my takeaway.
• 48:33
  SPEAKER_01: And I think uh the takeaway that I'm gonna give is really there's a lot going on.
• 48:37
  SPEAKER_01: We've heard from Jim Maloney multiple times.
• 48:39
  SPEAKER_01: He has said these rulemakings are going to come out fast and furious.
• 48:43
  SPEAKER_01: He has also said this is going to be the summer of blockbusters.
• 48:46
  SPEAKER_01: Stay tuned.
• 48:47
  SPEAKER_01: And he said this after these three were proposed.
• 48:52
  SPEAKER_01: And obviously, I think we're going to continue to see things proposed and eventually adopted.
• 48:58
  SPEAKER_01: I won't make a prediction on timeline.
• 49:00
  SPEAKER_01: Um but I think my message is pay attention because it's going to happen pretty quick.
• 49:05
  SPEAKER_01: And right, and we this administration has a short window to get things accomplished.
• 49:10
  SPEAKER_01: And if you're not paying attention at the outset or even providing comments in response or engaging with with others who are experts or even your peers, you're you're going to be left behind.
• 49:21
  SPEAKER_01: So um, with that, I want to thank the two of you for joining me today.
• 49:25
  SPEAKER_01: A great conversation.
• 49:26
  SPEAKER_01: Looking forward to many more.
• 49:27
  SPEAKER_01: Thank you.
• 49:28
  SPEAKER_01: Thank you.
• 49:28
  SPEAKER_00: Thank you.