[co-author: Carlos Juarez]
The Director of the SEC’s Division of Corporation Finance (the “Division”), Erik Gerding, shared his views on the state of public company disclosures during 2023 and the SEC Staff’s review priorities for 2024. The statements were made in April 2024 at the Practicing Law Institute’s 2024 The SEC Speaks Conference and were recently published in full on the SEC’s website. The Director noted that in 2023, the emerging areas of focus for the Division Staff included market disruptions in the banking industry, cybersecurity risks, the impact of inflation, and disclosures related to newly adopted rules, such as pay versus performance. In 2024, Director Gerding anticipates that the Division Staff will continue to closely monitor disclosures by companies based in the People’s Republic of China (“China-Based Companies”) in addition to new disclosure priorities such as artificial intelligence (“AI”) and potential exposure due to changes in the commercial real estate (“CRE”) market.
The Division conducts an annual report review program to monitor and enhance compliance with disclosure rules and accounting requirements filed by public companies. Consistent with prior years, some of the top areas of comment for 2023 included financial reporting topics, especially relating to areas that involve judgment or as to which the Financial Accounting Standards Board or the International Accounting Standards Board have recently issued accounting standards. These areas included segment reporting, including compliance with new U.S. GAAP disclosures effective in annual periods beginning after December 15, 2023; compliance with rules related to the use of non-GAAP financial measures; critical accounting estimates disclosures in MD&A; and disclosures related to supplier finance programs in the notes to the financial statements and any related information related to these arrangements included in MD&A.
The Director anticipates that many of the disclosure priorities from 2023 will continue through 2024 and the following year. For example, the Division expects to continue its focus on China-Based Companies and seek to elicit disclosure from companies regarding any material risks they face in connection with the PRC government intervening in, or exercising control over, their operations in the PRC. The Director warned that, while inflation concerns may be diminishing, it is not the time to revert to boilerplate disclosures. The Director reminded the audience that any material ongoing impacts should be disclosed, and that the Division asks companies not just to note high level trends but also to discuss the more particularized risks and impacts on the specific company. Finally, given the market disruptions in the banking industry stemming from the collapse of Silicon Valley Bank, the Director noted that the Division will continue to take a careful look at updated disclosures related to interest rate risk and liquidity risk for financial institutions.
Emerging areas of focus for the Division Staff include disclosures related to AI and potential exposure due to changes in the CRE market. As companies increasingly incorporate AI into their operations, the SEC will be focusing on how companies define and tailor their disclosures commensurate to the risks and impacts of utilizing AI technology on the company’s operations, as opposed to utilizing boilerplate or “generic buzz” disclosures. Similarly, the Division Staff encourages companies with CRE exposure to provide more granular information where possible to improve investors’ understanding of the material risks inherent in the company’s CRE or other loan portfolios and any mitigating steps they are taking to address those risks. The SEC Staff is also tracking how companies are navigating the disclosure requirements resulting from newly adopted rules including those relating to clawbacks, SPACs, and cybersecurity. Read Director Gerding’s full remarks.
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