Guest blog by Monica Banuelos.
We Don’t Know What We Don’t Know
“Those that fail to learn from history, are doomed to repeat it.” - Winston Churchill
Receiving a Comment Letter from the SEC is a real fear that nearly every Financial Reporter who works for a U.S. public company has experienced at one time or another in his or her financial reporting career. Period. Plain and simple.
However, this fear and anxiety can grow exponentially when a company must report a new disclosure in one of its filings to the SEC.
But What if We had Insight?
….but, WHAT IF this anxiety could be abated altogether? What if, instead of reaching for that over-used and abused stress-ball that sits under the dual-monitors on your desk; or instead of heading to the vending machine for a sugary bag of empty nerve-fighters; or instead of pouring that fourth cup of full-strength nervosa-blend coffee; …you had available, at your fingertips, a financial reporting and research tool that could quickly and efficiently provide information on actual Comment Letters issued by the SEC? … and the related responses from respective recipients of these SEC Comment Letters?... nicely grouped and organized in a chronological, easy-to-follow summary of the ‘deets’? Wouldn’t it be helpful to know what your peers got called up on by the SEC so that you can be fully prepared when you get that dreaded “Dear CFO” letter?
Certainly, you would gain valuable insight that could be leveraged for the benefit of your organization. Additionally, your role as Financial Reporter could dynamically transform from one of ‘necessary expense’ to one of ‘value-add’. With a tool like this, you, personally, could save hours of time scouring the ‘Net for example financial statement disclosures on the new topic you need to disclose in your upcoming 10-K or 10-Q. But, do you also realize that with a tool like this, you could catapult to ‘Rock Star’ status by being the guy or gal smart enough to take researching financial disclosures to the next level?
That’s right, who says Financial Reporters can’t dream?! I have dreams. You have dreams. We all have dreams - dreams of being the best at something, right? Well, I’m not afraid to say that I dream of being a Rock Star Financial Reporter and if school taught me one important thing, it was this: study history and learn from the experience of others! So, then, why risk getting a SEC Comment Letter on a topic for which your peer has already received one?
Study History and Learn from Experience
Let’s say your company has a new event during, or an item of significance at the end of, a financial reporting period that requires disclosure under SEC statutory filing requirements. Intuitively, for this respective topic, a good Financial Reporter would research applicable reporting requirements to ensure compliance is attained as well as gather a collection of sample disclosures from filings already submitted to the SEC. Most likely, these two areas of reference would serve as the basis for the draft disclosure in your upcoming filing. Right? Truth be told, there is an overwhelming amount of information and examples available to us – guidance, best practices, information on industry trends on SEC Comment Letters from expert resources, etc. For anyone using the Internet as the pool we search for sources of reference, overwhelming is an understatement of the descriptor for the information available to us! Nonetheless, we draft our disclosure and move forward. We chose our source references as best we could – or did we?
Now, we’ve all been there…knots in stomach, fingers crossed, silently praying that the final disclosure we filed with the SEC does not come back to haunt us in the form of a SEC Comment Letter. But not the Rock Star! The Rock Star, strikingly different from the masses, not only has the talent of a good Financial Reporter, but also has the desire to catapult above the rest and search out cutting edge tools that distinguish Great from good.
The Rock Star has the tool that can quickly, efficiently, and succinctly researches specific topics for you amongst SEC Comment Letters AND the respective recipient responses, delivering them to you chronologically summarized. Study history and learn from the experience of others. Read their SEC Comment Letters before you potentially get one of your own! Draft your disclosures with this knowledge in mind.
… and did I mention that research results can be sliced and diced and parsed however you so desire? Topic. Peer group. Market cap. Time period. You name it.
The Research Tool is Out There. Now.
And it's available to us. ALL of us. We just have to know where to look.
Real-Life Example: the SEC makes similar inquiries of two industry peers on their Accelerated Share Repurchase (ASR) programs whose respective activity occurred and was disclosed in their financial statements more than a year apart.
Could Company B potentially have had a ‘heads-up’ warning on the Comment Letter it received in 2016 for the disclosure of its Accelerated Share Repurchase (ASR) program? A quick proactive search through Comment Letters already received by peers on this topic - like the one received by Company A in 2015 for a similar ASR disclosure - most likely would have been a big help and time saver for Company B.