SEC Updates and Developments Marc Rosenbaum December 2013

PwC

SEC Leadership

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SEC Commissioners

Mary Jo White

Chair

Daniel Gallagher (R)

(2016)

Luis Aguilar (D)

(2015)

Kara Stein(D)

(2017)

Michael Piwowar (R)

(2018)

Office of the Chief Accountant

Division of Corporation

Finance

Division of Enforcement

Paul Beswick, Chief Accountant Keith Higgins, Director George Canellos and Andrew Ceresney , Co-directors

Daniel Murdock . Deputy Chief Accountant – Accounting

Brian Croteau, Deputy Chief Accountant Professional Practice

Julie Erhardt, Deputy Chief Accountant International

Mark Kronforst Chief Accountant

Craig Olinger, Deputy Chief Accountant,

Nili Shah, Deputy Chief Accountant

Open, Chief Accountant

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$14 million

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Division of Enforcement

• Whistleblower

• Three new task forces

Financial Reporting and Audit Task Force (FRAud Task Force)

Microcap Fraud Task Force

Center for Risk and Qu antitative Analytics

• Use of technology

• Trends in FCPA violations

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Speeches by the Chair

• The Importance of Independence

• Deploying the Full Enforcement Arsenal

• Remarks at the Securities Enforcement Forum

• The Path Forward on Disclosure

• The Importance of Trials to the Law and Public Accountability

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Overview and themes of the AICPA Conference

December 9 – 11, 2013 in Washington D.C.

Representatives from A ICPA, SEC, PCAOB, FASB and IASB

Qu al ity

- Financial reporting

- A u diting

Transparency

- Regu latory practices

- A u dits

- Disclosures

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Foreign Private Issuers

945 foreign registrants

Foreign private issuers:

Canada 335

Islands 245

Europe 110

Asia Pacific 85

Israel 70

South Am. 55

Other 45

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Solving Global Social Issues by Disclosure

• Office of Global Security Risk

• Mine Safety

• Disclosure of Payments by Resource Extraction Issuers

• Recent Cou rt Ruling

• Confl ict Minerals (first filings due May 31, 2014)

• Recent court ruling

• Iran Threat Reduction and Syria Human Rights Act of 2012

• Execu tive compensation: CEO pay ratio disclosure proposal

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Executive compensation: CEO pay ratio

• In September 2013, the SEC voted to propose the long-awaited rule that would require public companies to calculate and disclose its CEO compensation as a multiple of the median employee’s pay

• A company would be requ ired to provide the new pay ratio disclosures with respect to compensation for i ts first fiscal year commencing on or after the effective date of the final rule

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I dentifying median employee Determining total compensation

I dentification of employees

cov ered by rule

Dis closure of methodology and

as s umptions

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Use of social media

• Regulation Fair Disclosure (“FD”) requires

that companies disseminate material i nformation in a way that ensures that

i nvestors and the public learn of the

dev elopment on an equal footing and

si multaneously

• SEC cl arified that reporting entities can use soci al media outlets such as Facebook and

Tw i tter to announce key information in

compliance with Regulation FD

• Inv estors must be alerted about which outlet

the company will use to disseminate material i nformation

• August 2008 release on use of company

w ebsites

“… Specifically, in light of the direct and immediate

communication from issuers … through social

media channels, such as

Facebook and Twitter, we expect issuers to

examine rigorously the factors indicating

whether a particular

channel is a ‘recognized channel of distribution'

for communicating with investors.”

April 2013 SEC release

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PCAOB Leadership

PCAOB Board Members

James R. Doty

Chairman

Jay D. Hanson Lewis H. Ferguson Steven Harris Jeanette Franzel

Office of the Chief Auditor Division of Registration and Inspections

Division of Enforcement and Investigations

Martin Baumann, Chief Auditor & Director of Professional Standards

Helen Munter, Director Claudius Modesti, Director

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Proposal to Change Auditor’s Report

• Critical Audit Matters

• Other changes to report

• A ffirmative statement on independence

• State the year the auditor started serving the company

• N ame of the audit partner

• N ames of other firms involved in the audit

• A u ditor’s responsibility regarding other information in the annual report

• Other information includes MD&A

• Evaluate other information for material misstatement or material inconsistency with financial statements

• Impl ications

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PCA OB a dopts audit committee communications standard

Other PCAOB headlines

PCA OB concept release on auditor independence and a u dit firm rotation

PCA OB re-proposes amendments to PCAOB auditing standards to improve the transparency of audits

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PCA OB proposes related party auditing standard

PwC

Disclosure framework discussion paper

Background and objectives

• “Disclosure overload” is a longstanding complaint of users

• Primary objective of project is to increase disclosure effectiveness

- Secondary objective is to reduce volume of disclosure

• Scope of project is limited to the notes to financial statements (i.e., does not include the MD&A or other requ ired filings)

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Disclosure framework discussion paper

• Discu ssion Paper does not provide conclusions; rather i t explores several methods to achieve objectives including:

- Decision qu estions to consider what disclosures could be relevant to u sers

- Improvements to standard setting by including an objective of disclosures and making clear preparers do not have to provide all potential disclosures

- Providing preparers flexibility to determine what disclosures are relevant and a judgment framework to assess relevance

- Organization and formatting enhanced

- Evaluating interim disclosure requirements

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Disclosure framework discussion paper

Next steps

- Exposu re Draft expected in Q1 2014 for potential addition to a Concept Statement that the Board can use for setting future disclosure requ irements, including:

◦ Establish a purpose for notes to make clear ‘forward looking’ information is not appropriate for notes

◦ Incorporate decision qu estions into a Concept Statement to assist the Board determine what could be relevant for future standard setting

◦ The board requested the staff to develop an approach to help the board determine which annual disclosures should be required in interim statements

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Caterpillar Use of Graphs

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Risk Factors – Item 503 of Regulation S-K

… a discussion of the most

significant factors that make an

offering speculative or one of high risk. … Do not present risks that

could apply to any issuer or any offering.

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Examples of Risk Factor Disclosure

So-called acts of God such as earthquakes, hurricanes, f loods or f ires could adversely impact us.

The popularity of the Company’s products is difficult to predict, can change rapidly and could lead to f luctuations in the Company’s revenues, and low public acceptance of the Company’s products may adversely affect its results of operations.

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SEC comment letter trends

Recurring themes

Conti ngencies

MD&A

Impairment

Segment reporting

Income taxes

Certifications & signed audit

report Non-

GAAP

Guarantor Info

Fair value

Acquisitions &

Divestitures

Estimates

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Inaugural technology publications on SEC comment letter trends

#2 - “Stay informed – 2013 technology SEC comment letter trends”

#1 - “Preparing for success – 2013 technology IPO SEC comment letter trends”

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Inaugural technology publications on SEC comment letter trends (cont’d) “Preparing for success – 2013 technology IPO SEC comment letter trends”

SEC comments issued by the staff between Janu ary 1, 2011 thru March 31, 2013

Over 4,100 comments issued to 60 companies

A verage deal size approximated $468 mil lion ($150 million excluding Facebook)

Technology industry accounted for about 25% of pu blicly filed EGC IPOs

Available at: http://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtml

http://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtmlhttp://www.pwc.com/us/en/technology/publications/technology-ipo-sec-comments-letter-trends.jhtml

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Inaugural technology publications on SEC comment letter trends (cont’d)

SEC comments issued by the staff between Ju ly 1, 2012 thru June 30, 2013

N early 2,100 comments issued to 254 technology companies

2013 versus 2012:

−27% overall increase in the number of comments

−Average number of comments by registrant is down

−Computers and networking resulted in the largest

increase (nearly doubled)

Available at:

http://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtml

“Stay informed – 2013 technology SEC comment letter trends”

http://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtmlhttp://www.pwc.com/en_US/us/technology/publications/sec-comments-letter-trends.jhtml

PwC

Financial Reporting Executive Committee (FinREC)

Nonauthoritative guides for use by preparers, auditors & valuation specialists:

Testing of Goodwill for Impairment, which provides examples to aid in performing a goodwill impairment assessment and drafting related disclosures;

Assets Acquired to Be Used in Research and Development Activities , which covers the initial and subsequent accounting for, valuation of and disclosures related to acquired in-process research and development assets. The guide also clarifies differences in accounting when such assets are acquired through a business combination versus an asset acqu isition; and

Valuation of Privately-Held Company Equity Securities Issued as Compensation, which focuses on valuation methods for a range of complex capital structures.

Slide 24

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