Corp Fin summary of SEC review process

By Cydney Posner

For some reason, Corp Fin decided that June 2008 would be a good time to release a very basic summary of the SEC Filing Review Process. As required by SOX, Corp Fin engages in "some level of review" of each reporting company at least once every three years and also reviews a significant number of companies more frequently, through transactional filings or otherwise. The process is described as a selective one that focuses on "critical disclosures that appear to conflict with Commission rules or the applicable accounting standards or on disclosure that appears to be materially deficient in explanation or clarity." The summary indicates that much of Corp Fin’s review involves reviewing the disclosure from a potential investor’s perspective and asking questions that an investor might ask when reading the document. In most cases, there is a first-level examiner and a reviewer to provide consistency. The summary provides an overview of Corp Fin's internal hierarchy and levels of review and outlines the process of review and reconsideration.

Unfortunately, there's no disclosure of the criteria used for selection of filings for SEC review, a system that is guarded with the secrecy of a covert operation (and the subject of much speculation). In deciding whether to review a given filing, the staff performs "a substantive evaluation of each company’s disclosure in what it calls a preliminary review. To preserve the integrity of the selective review process, the Division does not publicly disclose its preliminary review criteria." No revelation of the secret handshake there.

There is, though some useful description of the informal protocol for seeking reconsideration of a staff comment. Corp Fin views the comment process as a "dialogue" with a company about its disclosure. The staff are available for discussion, and a company "should not hesitate" to request reconsideration of a comment at any point in the filing review process. If a company does not understand a comment or the staff’s intent in issuing a comment, it should seek clarification from the examiner before it responds. If the comment is still unclear, the company may then speak to the reviewer who approved the comment. Where issues remain open following the company's response to the comment, the company can, after discussing the matter with the examiner, ask to speak to the reviewer of that comment letter and so on up the chain of authority. The summary includes several tables, including names, showing the lines of appeal and authority for legal and accounting matters. In addition, the company can involve the SEC's Office of Chief Accountant (distinct from Corp Fin’s Office of Chief Accountant) at any stage in this process. Generally, the SEC's Office of Chief Accountant addresses questions concerning the application of GAAP, while Corp Fin resolves matters concerning the age, form and content of financial statements required to be included in a filing.