Financial Reporting and Regulatory Update

Third Quarter 2022

From the SEC

Strategic Plan

Draft strategic plan

On Aug. 24, 2022, the SEC released for public comment its draft strategic plan covering fiscal years 2022 to 2026. The plan details the SEC’s mission, vision, values, strategic goals, and planned initiatives. 

The plan establishes three key goals: 

  • “Protecting working families against fraud, manipulation, and misconduct; 
  • “Developing and implementing a robust regulatory framework that keeps pace with evolving markets, business models, and technologies; and 
  • “Supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives.” 

Among the initiatives to meet these goals, the SEC intends to do the following: 

  • “Pursue enforcement and examination initiatives focused on identifying and addressing risks and misconduct that affects individual investors.” 
  • “Enhance the use of market and industry data, particularly to prevent, detect, and enforce against improper behavior.” 
  • “Modernize design, delivery, and content of disclosures.” 
  • “Update existing SEC rules and approaches to reflect evolving technologies, business models, and capital markets.” 
  • “Focus on the workforce to increase capabilities, leverage shared commitment to investors, and promote diversity, equity, inclusion, accessibility, and equality of opportunity.” 
  • “Modernize the SEC’s technology to enable the mission in a cost-effective, secure, and resilient manner.” 

Comments were due Sept. 29, 2022.  

Public statements and announcements

Reopening rulemaking comment periods 

On Oct. 7, 2022, the SEC announced that, due to a technological glitch known to have occurred as early as June 2021, the comment period for certain proposed rulemakings and a request for comment would be reopened. The SEC indicates it did not receive certain comments previously submitted and suggests interested stakeholders should confirm that their original comment submission appears on the SEC’s website. The 12 affected releases include, among others, proposals on climate-related disclosures, cybersecurity risk governance disclosures, and special purpose acquisition companies. The comment period for each affected release will reopen for 14 days following publication of the SEC’s order in the Federal Register. 

Commissioners and staff remarks 

On Sept. 15, 2022, SEC Chair Gary Gensler provided opening testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. His remarks covered capital markets, market structure including crypto markets, predictive data analytics, issuers and issuer disclosure, funds and investment managements, and enforcement and examinations.

On Sept. 8 and 9, 2022, SEC commissioners and staff provided insights into current SEC initiatives and priorities at the Practising Law Institute’s “The SEC Speaks in 2022” program. Key topics included: 

  • Crypto assets 
  • ESG matters 
  • High-quality financial reporting and current rulemaking activities 

Crypto assets 

Gensler’s program-opening keynote set the tone for crypto assets. He noted, “Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities.” He also remarked that crypto securities are subject to the same requirements under federal securities laws as other securities, and offers and sales of crypto securities must be registered. Gensler also addressed the registration of intermediaries that transact in crypto securities, stablecoins, and nonsecurity crypto tokens. 

Enforcement Division Director Gurbir Grewal opened the second day of the conference with remarks on the crypto assets security ecosystem. Crypto assets were also mentioned in other presentations. Commissioner Mark Uyeda addressed perspectives on crypto assets, acting Chief Accountant Paul Munter remarked on Staff Accounting Bulletin (SAB) 121, Corporation Finance (Corp Fin) Division Chief Accountant Lindsay McCord discussed SAB 121 disclosure issues and crypto-related non-GAAP measures, and other Corp Fin staff members stated they have a new industry office focused on disclosure review of registrants involved in crypto assets. Staff from the Trading and Markets Division and the Enforcement Division also remarked on their crypto initiatives and focus.

ESG matters 

Various panels highlighted the SEC’s significant pending ESG rule proposals. Corp Fin Division Director Renee Jones highlighted the objectives and feedback themes from the SEC’s recent climate-related disclosure rule proposal. Corp Fin staff members discussed how they evaluate registrants’ current climate disclosure using 2010 SEC guidance and the staff’s September 2021 sample letter on climate change disclosure, and Corp Fin Chief Counsel Michael Seaman addressed climate-related shareholder proposal no-action requests. Enforcement Division, Investment Management Division, and Examination Division staff also mentioned ESG as a significant focus area in their activities. 

High-quality financial reporting and current rulemaking activities 

Munter, McCord, and Investment Management Chief Accountant Jenson Wayne spoke on various matters in their panel presentation, including: 

  • High-quality accounting standards, the application of those accounting standards including in specific issuer facts and circumstances, and high-quality audits, including auditor independence 
  • Materiality considerations 
  • Holding Foreign Companies Accountable Act (HFCAA) 
  • SAB 74 disclosures and the importance of transparent communication to users 
  • Corp Fin’s waiver process 

Corp Fin staff addressed a number of financial reporting issues including Item 407 of Regulation S-K governance disclosure, the impact of current events (for example, changes in interest rates, inflation, supply chain issues, and geopolitical conflict) on management’s discussion and analysis, non-GAAP measures (for example, prominence, mislabeling, and certain specific adjustments), segment disclosure, disclosure considerations for China-based issuers, and certain disclosure issues in registration statements following a de-SPAC transaction.

Enforcement Division staff talked about its current approach to high-quality financial reporting and other matters. 

Multiple panels addressed current rulemakings including the Economic and Risk Analysis Division, Office of the Whistleblower, Investment Management, and Corp Fin. Corp Fin’s topics included summaries of recent rule proposals on cybersecurity, 10b5-1 plans, shareholder proposals, and the newly effective universal proxy final rule, which is effective for shareholder meetings held after Aug. 31, 2022. 

Statement on importance of independence and ethical responsibility 

Acting Chief Accountant Munter released on Aug. 29, 2022, a statement addressing auditor independence and ethical responsibility considerations when contemplating audit firm restructuring transactions. In relation to auditor independence considerations, Munter discussed the SEC Office of the Chief Accountant’s staff observations related to audit firm restructuring transactions, challenges from private equity investments, and divestitures of a portion of a business. Munter warned, “In these complex practice structures and divestitures, it is paramount that the accounting firm fully understands its responsibility for maintaining auditor independence and it discloses such requirements to the non-accounting firm investors involved in the transaction so that the accounting firm can obtain the information necessary to fulfill its responsibilities.” 

Further, Munter said, “When an accounting firm is considering obtaining an investment from a private equity or other investment structure, each entity within such structure would need to be carefully evaluated to determine if the entity is an ‘associated entity’ and is therefore part of the accounting firm for purposes of assessing potential impacts on, among other things, compliance with the Commission’s auditor independence requirements.” 

In conclusion, Munter reminded accountants of the requirement to be independent in both fact and appearance, and he said when auditor independence is a close-to-the-line call, accounting firms need to have a strong culture and tone at the top that prioritizes independence and ethical responsibilities above all else.

Statements on PCAOB agreement with China 

On Aug. 26, 2022, the PCAOB announced that it had signed an agreement with Chinese authorities on audit inspections and investigations. The agreement establishes a specific and accountable framework for the PCAOB to inspect and investigate PCAOB-registered public accounting firms in China and Hong Kong. In response to this agreement, Chair Gensler issued a statement, saying the framework is important but it is just a step in the process, and will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China. Gensler said that this agreement brings specificity and accountability to effectuate Congress’s intent with the HFCAA and provides the standards against which to judge whether auditors of Chinese issuers have complied with the requirements of U.S. law, including PCAOB auditing standards. 

Also on Aug. 26, 2022, Commissioner Jaime Lizárraga released a statement describing the new PCAOB agreement as a “step forward in holding China- and Hong Kong-based public companies to the same accountability standards as all other issuers that access U.S. capital markets.” He said these companies have experienced an unfair advantage by evading U.S. regulations, and that they now need to fully comply or lose the privilege of raising capital in U.S. financial markets. 

In a related statement, acting Chief Accountant Munter on Sept. 6, 2022, provided his thoughts on audit quality and investor protection under the HFCAA. Munter offered his views on the PCAOB’s fundamental role in improving audit quality, engaging new lead audit firms in response to the HFCAA, audit engagement structures of multinational issuers, engaging new accounting firms to remediate noncompliance, and other important considerations for accounting firms and issuers. 

Small-business capital committee meeting 

The SEC’s Small Business Capital Formation Advisory Committee held a videoconference meeting on Aug. 2, 2022, to discuss matters relating to rules and regulations affecting small and emerging businesses and their investors under federal securities laws. Committee members provided their outlooks on what is ahead for small-business capital formation. Additionally, the committee discussed secondary market liquidity for investors in Regulation A and Regulation Crowdfunding companies and for smaller public companies. They discussed exit opportunities for these investors, secondary market liquidity challenges for the private and smaller public companies and their investors, and what changes could help facilitate secondary liquidity for these investors. 

Chair Gensler shared remarks at the meeting, noting that he looks forward to the committee’s discussion on promoting investor protection and facilitating capital formation. Commissioner Uyeda presented remarks, acknowledging the importance of the committee’s work and its recommendations, which provide helpful ideas for capital formation that are considered and used by policymakers and also are relevant to financial regulators. Commissioner Lizárraga also shared remarks, in which he highlighted unique challenges in addressing liquidity in the secondary markets for private offerings. Lastly, Commissioner Hester Peirce presented remarks, asking several questions about improving secondary market liquidity. 

Remarks on climate-related financial risks proposals 

At the Financial Stability Oversight Council meeting on July 28, 2022, Chair Gensler shared an update on the SEC’s proposals on climate-related financial risks, including the proposals on climate-related disclosures, the Names Rule for funds, and disclosure requirements for advisers and investment companies marketing themselves with labels related to ESG issues. He said that the climate-related disclosures proposal is about adding consistency, comparability, and decision-usefulness to this information and said the SEC has received more than 14,500 comments, which are available on the SEC website. He said that the Names Rule proposal will help ensure investors are provided with the information that conforms with climate-related naming conventions. Gensler noted that the SEC is focused on making sure statements that companies present to investors are not materially false or misleading. 

The comment periods closed on Aug. 16, 2022, for the proposals on the Names Rule and the disclosure requirements for advisers and investment companies. The comment period for the climate-related disclosure proposal ended on June 17, 2022. 

Remarks on 20th anniversary of SOX 

On July 27, 2022, before the Center for Audit Quality, Chair Gensler delivered remarks recognizing the 20th anniversary of the Sarbanes-Oxley Act. He said that finance ultimately is about trust and a fundamental goal of SOX was to restore trust in the U.S. financial system after several crises revealed weaknesses. Gensler noted the impact of SOX on the quality of auditing standards; auditing inspections, investigations, and enforcement; auditor independence; accounting standards; corporate governance; and coverage of foreign issuers in the U.S. He said that although SOX has had a profound effect on auditing standards with the establishment of the PCAOB, and the PCAOB initially adopted the auditing standards of the American Institute of Certified Public Accountants (AICPA), there is still much work to be done to update and enhance the standards. 

Gensler identified the PCAOB’s responsibility for inspecting and investigating auditing firms for compliance with auditing standards and bringing enforcement actions as critical factors in imparting trust in the U.S. capital markets. He said that under the current leadership, the PCAOB has an opportunity to reinvigorate its enforcement program. He then addressed auditor independence and concerns over the growth and complexity of advisory businesses within auditing firms, stressing the importance of maintaining a culture of ethics, integrity, and independence. 

Additionally, Gensler noted that SOX created requirements for corporate governance and accountability to help ensure that the incentives of executives, boards, accountants, and investors were better aligned. However, cases still are brought today regarding these matters. Lastly, Gensler touched on coverage of foreign issuers in the U.S. and said that they need to play by the same rules as everyone else or lose access to the U.S. markets. He specifically mentioned China and Hong Kong. 

In conclusion, Gensler noted that although we have gained a lot from SOX and the quality of public company audits has improved, much more work is still to be done for SOX to reach its full potential. 

Enforcement director testimony to House committee 

On July 21, 2022, Gurbir Grewal, director of the SEC’s Division of Enforcement, testified on the work of the division before the U.S. House of Representatives Committee on Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets. He noted that the work of the Division of Enforcement is central to the SEC’s mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. He reported that during the fiscal year ended Sept. 30, 2021, the SEC filed 434 new enforcement actions, a 7% increase over the prior year. In addition, the SEC’s whistleblower program awarded $564 million to 108 whistleblowers, compared to 39 whistleblowers in the prior year. He said a main goal of the division is to restore public trust in the U.S. markets and institutions through robust enforcement, remedies, and compliance, which he identified as the division’s priorities.

Grewal described the ever-changing landscape of enforcement and how the division needs to keep up with newer and emerging areas and risks and more complex schemes of misconduct. He noted that robust enforcement includes a focus not only on the wrongdoers but also on gatekeeper accountability. In addition to punishing wrongdoers for violations of the securities laws, the SEC’s remedies should prevent future violations from happening in the first place and should be viewed as more than the cost of doing business. He added that robust compliance is a responsibility shared by all market participants. 

Finally, Grewal noted that the division has been performing its work with fewer employees. He said that the challenges currently faced by the division require it to constantly assess and reassess how best to allocate the division’s limited resources in the most effective manner to address the most significant and pressing risks facing investors and the financial markets. The SEC’s fiscal year 2023 budget seeks additional staff to enable the division to meet these increasing challenges and to maintain an effective investigative capacity and deterrent presence for the benefit of the U.S. markets and investors. 

Risks of single-stock ETFs 

On July 11, 2022, Commissioner Caroline Crenshaw released a statement on single-stock exchange-traded funds (ETFs) expressing her concerns over these complex, leveraged, and inverse ETFs that might create greater risks for investors and calling for consideration of rulemaking over these risky investments. She noted that the current regulatory framework, including Rule 6c-11 of the Investment Company Act of 1940, allows ETFs meeting certain criteria to come directly to market without first obtaining permission, through an exemptive order, from the SEC. She said single-stock ETFs are coming directly to market even though they were never contemplated by this rule. She warned that the daily rebalancing and effects of compounding might cause returns to deviate significantly from the performance of the one underlying stock, and that the effects are likely to be especially evident in volatile markets. Such leveraged and inverse products can perform in unexpected ways and potentially contribute to broader systemic risks. 

She reiterated her position that a comprehensive and consistent approach to the review of complex exchange-traded products is long overdue and that the regulatory framework needs to be updated to better address the risks these products pose to investors and the markets. 

Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, also released a statement on July 11, 2022, highlighting the risks of single-stock ETFs. Schock noted that these are meant to be held for very short periods of time, often only a single day, and holding them for longer periods might result in returns significantly different from returns if an investor held the underlying stock directly. Additionally, these single-stock ETFs do not provide the diversification of traditional ETFs or other leveraged or inverse products. 

Rules and guidance

JOBS Act inflation adjustments 

On Sept. 9, 2022, the SEC amended its rules to implement inflation adjustments mandated by the JOBS Act, which requires the SEC to make inflation adjustments to certain JOBS Act rules at least once every five years. These newly adopted amendments increase the annual gross revenue threshold in the definition of emerging growth company from $1,070 million to $1,235 million. They also increase certain financial thresholds in Regulation Crowdfunding. 

The final rules and thresholds became effective on Sept. 20, 2022. 

Whistleblower rules 

The SEC on Aug. 26, 2022, adopted two amendments to the rules governing its whistleblower program, which was established in 2010 to encourage individuals to report high-quality tips to the SEC and help the agency detect wrongdoing and better protect investors and the marketplace. 

Rule 21F-3 is amended to allow the SEC to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity’s whistleblower program. The changes allow for such awards when the other entity’s program is not comparable to the SEC’s program or if the maximum award that the SEC could pay on the related action would not exceed $5 million. 

Additionally, the amendments affirm the SEC’s authority under Rule 21F-6 to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, and the SEC’s authority to consider the dollar amount for the purpose of decreasing an award is eliminated. 

The final rules were effective Oct. 3, 2022. 

Pay-versus-performance disclosure rules 

On Aug. 25, 2022, the SEC voted to finalize pay-versus-performance disclosure rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules require more transparency about how executive compensation relates to company performance. While the final rules were effective Oct. 11, 2022, registrants must comply with the new requirements in proxy and information statements that include Regulation S-K Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022. 

The final rules were originally proposed in 2015, and opened to additional public comment in 2022. 

Registrants must provide pay-versus-performance disclosure in their annual proxy or information statement that includes executive compensation disclosure under Item 402 of Regulation S-K. Smaller reporting companies (SRCs) can use scaled disclosure. Emerging growth companies, foreign private issuers, and registered investment companies are exempt. 

Registrants must provide tabular disclosure for the most recent five years (three years for SRCs) of: 

  • Principal executive officer (PEO) and named executive officer (NEO) compensation: 
    • Total compensation, which is the same amounts as in the summary compensation table, of the PEO and the average total compensation of other NEOs 
    • Compensation actually paid to the PEO and the average actual compensation paid to the other NEOs 
  • Financial performance measures: 
    • Total shareholder return (TSR) 
    • TSR of the entity’s peer group (not required for SRCs) 
    • Net income 
    • The entity-specific, company-selected financial performance measure (company-selected measure) that is most important to the link between compensation actually paid and company performance for the most recently completed fiscal year (not required for SRCs) 

In addition to the tabular disclosure, an entity must provide: 

  • A clear description (graphic, narrative, or both) of the relationship between the executive compensation actually paid to the PEO and NEOs and the tabular financial performance metrics for the five most recently completed fiscal years (three years for SRCs). 
  • A description of the relationship between the entity’s cumulative TSR and cumulative peer group TSR (not required for SRCs). 
  • A list of up to seven most important financial performance measures used to link compensation to performance (not required for SRCs). A registrant also may elect to include nonfinancial measures in the list. 

Proxy voting advice rules 

On July 13, 2022, the SEC adopted amendments to its rules governing proxy voting advice originally proposed in November 2021. The purpose of the amendments is to reduce burdens on proxy voting advice businesses that might impair the timeliness and independence of their advice. The amendments rescind two rules, adopted by the SEC in 2020, applicable to proxy voting advice businesses, specifically conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which these businesses often rely. The rescinded conditions required that: 

  • “Registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner” 
  • “Clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice” 

Additionally, the amendments delete the 2020 changes made to the proxy rules’ liability provision, and the adopting release rescinds guidance that the SEC issued in 2020 to investment advisers regarding their proxy voting obligations. 

The amendments and rescission of the guidance were effective Sept. 19, 2022. 

Electronic filing requirements 

To modernize how information is filed or submitted to the SEC and disclosed to the public, on June 23, 2022, the agency adopted amendments to require certain documents filed by investment advisers, institutional investment managers, and certain other entities, which previously were submitted on paper, to be filed or submitted electronically. The rule includes technical amendments to modernize Form 13F and enhance the information provided. 

The new rule, except the amendments to Form 13F, were effective Aug. 29, 2022. The amendments to Form 13F will be effective Jan. 3, 2023. 

Chair Gensler released a statement in support of these new amendments, noting that “they will modernize and increase the efficiency of the filing process for filers, investors, and the SEC.” 


  • Require central clearing for certain transactions 
  • Set certain margin policies and procedures for direct participants 
  • Establish policies and procedures for settlement services for all eligible transactions 
    • The proposal also would amend certain broker-dealer customer protection rules. 

      Comments are due 60 days after publication in the Federal Register. 

      Proposed enhancements to private fund reporting 

      On Aug. 10, 2022, the SEC proposed, jointly with the Commodity Futures Trading Commission, amendments to Form PF. The amendments increase disclosure granularity of private funds’ operations and strategies. 

      Comments were due Oct. 11, 2022. 

      Proposed changes to clearing agency governance 

      The SEC proposed on Aug. 8, 2022, rules to improve the governance of clearing agencies. The proposal defines independence and requires certain minimum criteria for clearing agency directors and committee members. The proposal also requires clearing agencies to institute various governance policies and procedures. 

      Comments were due Oct. 7, 2022. 

      Proposed changes to FINRA membership requirement 

      The SEC on July 29, 2022, re-proposed amendments that would narrow the exemption from Securities Exchange Act Section 15(b)(8), which requires any broker or dealer registered with the SEC to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member. The Financial Industry Regulatory Authority (FINRA) currently is the only registered national securities association. 

      Rule 15b9-1 provides an exemption from Section 15(b)(8) under which certain SEC-registered dealers may engage in unlimited proprietary trading of securities on any national securities exchange of which they are not a member or in the over-the-counter market without triggering the Section 15(b)(8)’s FINRA membership requirement. The proposed amendments would replace this exemption with narrow exemptions from Section 15(b)(8)’s FINRA membership requirement. Under the proposed amendments, “a broker-dealer that carries no customer accounts and effects securities transactions other than on a national securities exchange where it is a member would be exempt from Section 15(b)(8) only if those transactions result from routing for order protection purposes by a national securities exchange where the broker-dealer is a member or constitute the execution of the stock leg of a stock-option order.” 

      Comments were due Sept. 27, 2022. 

      Proposed amendments to shareholder proposal rule 

      The SEC on July 13, 2022, proposed amendments to Rule 14a-8, which governs the process for including shareholder proposals in a company’s proxy statement. It provides bases for exclusion, with substantive requirements. The proposed amendments would revise three of the bases for exclusion: 

      • “Substantial Implementation. The proposed amendments would specify that a proposal may be excluded under this provision if the company has already implemented the ‘essential elements’ of the proposal. 
      • “Duplication. The proposed amendments would specify that a proposal ‘substantially duplicates’ another proposal previously submitted for the same shareholder meeting if it addresses the same subject matter and seeks the same objective by the same means. 
      • “Resubmission. The proposed amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings.” 

      Comments were due Sept. 12, 2022.