The SEC Comment And Response Process
As discussed in the first Lawcast in this series, The SEC Division of Corporation Finance, referred to as “CorpFin” reviews and comments upon filings made to the SEC for the purpose of improving and enhancing disclosure. CorpFin issues comment letters based on a review of a company’s filings and any other public disclosures about or by the company. For example, CorpFin will review press releases, a company’s website, management communications and speeches, and conference presentations in addition to the company’s filings with the SEC.
In comment letters, CorpFin may ask that a company to (i) provide additional supplemental information to the staff (such as backup materials to justify factual information or third party sources), (ii) revise disclosure in the document, (iii) provide additional disclosure in the reviewed filing or (iv) provide additional or different disclosure in future filings.
Where a change is requested in future filings, the proposed future disclosure can be provided in the comment letter response for SEC advance approval.
A company generally responds to a particular comment letter with a responsive letter that addresses each comment, and where required the amended filings on the particular report(s) being commented upon. The response letter may reference changes made in the report and filed in the amendment, or it may provide reasoning or explanations as to why a change was not made and argue in support of a particular disclosure. CorpFin may then issue additional comment letters either on the same question or issue, or additional questions or issues as it continues its review, and analyze the company’s responses. The company should carefully consider its responses to comments as they can open the door to additional review and comments. Comments related to accounting treatment and the flow-through to MD&A can be especially tricky and open the door to further review and changes.
Each comment response should clearly present the company’s position on the pertinent issue in a way that will persuade CorpFin that it is the correct position. Comment responses should be supported by law and fact and should cite applicable SEC rules, guidance and accounting authority. Responses should explain how the company’s approach serves to satisfy the SEC’s requirements while providing good disclosure to investors. Responses should avoid conclusory or argumentative statements. . CorpFin may request that the reasoning behind a disclosure be added to the SEC report itself, and so the company should consider whether it wants particular language included in public filings when drafting a response letter to a comment.
The comment and response process continues until the staff has resolved all comments.