SEC Trends & Developments - Spring 2012 - News

  • The staff in the Division of Corporation Finance (“Corp Fin”) of the SEC has issued CF Disclosure Guidance: Topic No. 3, “Staff Observations in the Review of Promotional and Sales Material Submitted Pursuant to Securities Act Industry Guide 5.” This guidance summarizes the comments of Corp Fin during their review of promotional and sales material submitted by registrants under Securities Act Industry Guide 5 (the “Guide”). The Guide only applies to real estate limited partnerships, but the SEC has indicated that those requirements should be considered for real estate investment trust and other limited partnership registration statements. The topics covered by Corp Fin include balanced discussion of both risk and reward, consistency with representations included in the prospectus, information about the distributions to investors, presentation of information about registrant affiliates and images of properties included in sales materials. The guidance can be obtained at 
  • The Committee of Sponsoring Organizations of the Treadway Commission has issued a proposed update to the “Internal Control - Integrated Framework” (the “Framework”). The proposed revision is intended to help organizations improve performance with greater agility, confidence, and clarity.  These revisions are the result of the comments from a broad range of professionals from industry, representatives and observers from academia, government agencies, and nonprofit organizations.  The original Framework was issued in 1992, and the proposed revisions retain the core definition of internal control and the five components of a system of internal control. One of the more significant changes proposed is the codification of the original internal control concepts codified into 17 principles and supporting attributes. The comment period ends March 31, 2012 and the release of the final revisions is expected in the fall of 2012.
  • In a letter to the SEC, a coalition of business groups has said that the provision of the Wall Street Reform and Consumer Protection Act ("Dodd-Frank") that requires companies to show how top executive compensation compares to the average employee, and to disclose the pay of the CEO, the median pay of the other employees and the ratio between the two is “an unnecessary regulatory expenditure.”  According to the groups, the main problem is not the disclosure of the CEO's pay, but the difficulty in compiling the information. Corp Fin and the PCAOB have again collaborated on a public outreach program for auditors and smaller registrants.  Slides from the 2011 presentation SEC Staff Review of Common Financial Reporting Issues Facing Smaller Issuers, and some of the presenter's notes, are now posted at  This material was prepared for smaller issuers, but larger issuers will also find this information useful.  The SEC staff issued them to provide a sampling of issues that Corp Fin frequently encounters reviewing the filings of smaller registrants.
  • Speeches and other public statements presented by the Chairman of the SEC, SEC Commissioners, and staff of the SEC, cover a wide range of topics such as current markets and the Commission's regulatory agenda.  These items can be viewed at  Included at this location are the full text of speeches given at this year's AICPA National Conference on Current SEC and PCAOB Developments, which was held in December 2011 in Washington, D.C. (See "Highlights from the 2011 AICPA National Conference in Current SEC and PCAOB Developments.")
  • Legislation was recently introduced that may require the U.S. Homeland Security Department to identify systems, and set regulations to improve security on those systems, that if attacked, could cause mass causalities or catastrophic economic damage.  Some groups oppose the proposed legislation saying that it would burden companies with unneeded and costly regulations.
  • Section 404(b) of the Sarbanes-Oxley Act continues to evolve.  In February 2012 the House Financial Services Committee approved HR 3606, which is the “Reopening American Capital Markets to Emerging Growth Companies Act.”  HR 3606 will establish a new sector of public companies called “emerging growth companies.” These companies have less than $1 billion in revenues at the time they register with the SEC and less than $700 million in market capitalization after their IPO.  HR 3606 will also create a transition period for these could last up to five years, or until they reach annual revenue of $1 billion or market capitalization in excess of $700 million and would exempt these companies from Section 404(b) during the transition period.  A bill is also being considered for later this year that would consider a permanent exemption of all companies with public float of less than $1 billion from the requirements of Section 404(b). (See "New IPO Rules for Smaller Companies.")
  • The PCAOB has proposed that auditors read the compensation contracts of their clients and look for any incentives that might encourage executives to inflate earnings.  PCAOB board member Steve Harris said that "Among the most commonly cited motivations for financial reporting fraud was the desire to increase management compensation based on financial results."  The proposal also requires auditors to dig deeper into "significant unusual transactions" as well as registrant's dealings with related parties.  Comments on this proposal are due by May 15.
  • Although returns on investments in the BRIC economies (Brazil, Russia, India, and China) still hold great potential, a study by Maplecroft, a global research analyst, cautions investors that these economies are still exposed to certain risks such as internal conflict and the impact of climate change. Maplecroft looked at strategic risks that impact businesses, and looked at five key global risks: macroeconomics; security risk; resource security; climate change; and pandemics.  Their study indicated that India and Russia are “particularly exposed to the destabilizing influence of internal insurgencies,” while Russia and China could suffer from global climate change.

SEC Trends & Developments - Spring 2012 Issue 

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