E-Minders January 2019

In This Issue:

E-Minders is our monthly e-mail newsletter containing the latest developments and practical guidance for corporate & securities law practitioners.

We view TheCorporateCounsel.net as the gathering place for the community and encourage those who may not yet be members to take advantage of a No-Risk Trial to see what you are missing. Here are 12 Good Reasons to try us now.

You can subscribe below to receive a complimentary E-Minders subscription - even if you don't subscribe to TheCorporateCounsel.net. Our hope is that once you get to know us, you will understand the true value of a subscription to TheCorporateCounsel.net. Note that subscribers to TheCorporateCounsel.net should sign up below for E-Minders too, as we don't have the e-mail addresses for many people in our community.

It's Done: 2019 Executive Compensation Disclosure Treatise: We wrapped up Lynn, Borges & Romanek's "2019 Executive Compensation Disclosure Treatise" - and it's printed. This edition includes the latest pay ratio guidance from the first year of disclosure - as well as Corp Fin's recently-updated CDIs. All of the chapters have been posted in our "Treatise Portal" on CompensationStandards.com.

How to Order a Hard-Copy: Remember that a hard copy of the 2019 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now as this will ensure delivery of this 1700-page comprehensive Treatise soon. Here's the "Detailed Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. Order Now.

"101 Pro Tips – Career Advice for the Ages" Paperback! You know you're old when you're writing a book with career advice. John & Broc have wrapped up their latest paperback – "101 Pro Tips – Career Advice for the Ages" Paperback. Here's the "Table of Contents." It's free for members of TheCorporateCounsel.net (but it does cost $20 in shipping & handling).

This book is designed for fairly young lawyers – both in law firms and in companies. It's written in an "easy to read" style, complete with some stories & anecdotes to make it interesting. A fairly unique offering in our field. This is a unique offering – and we're pretty happy about how it came out. Members can request it now.

Our New "In-House Accelerator"! If you're relatively new to being in-house - or you want to gain that perspective - take advantage of our new "In-House Accelerator"! This online - and offline - training program is free for members of TheCorporateCounsel.net. In addition to the "In-House Accelerator" paperback (paperback consists of 216 FAQs; here's the "Table of Contents"), there is a series of podcasts & other comprehensive materials covering these four areas:

1. Corporate Governance
2. Proxy Season
3. '34 Act Reporting
4. Other

It's Done! 2019 Edition of Romanek & Dunshee's "In-House Essentials Treatise": Broc Romanek & Liz Dunshee have wrapped up the 2019 Edition of the definitive guidance on securities law for the in-house lawyer and it's printed: Romanek & Dunshee's "In-House Essentials Treatise." With over 1850 pages - spanning 21 chapters - you will need this practical guidance for the challenges ahead. Here's the "Detailed Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. Order on TheCorporateCounsel.net.

It's Done! 2019 Edition of Romanek's & Dunshee's "Proxy Season Disclosure Treatise": Broc Romanek & Liz Dunshee have wrapped up the 2019 Edition of the definitive guidance on proxy season disclosure and it's printed: Romanek & Dunshee's "Proxy Season Disclosure Treatise & Reporting Guide." With over 1750 pages - spanning 33 chapters - you will need this practical guidance for the challenges ahead. Here's the "Detailed Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. Order on TheCorporateCounsel.net.

New! "Deal Tales" - A Three Volume Set! Education by entertainment! This “Deal Tales” series of three paperback books teaches the kind of things that you won't learn at conferences, nor in treatises or firm memos. Here's the "Table of Contents" for each volume rolled into one. With the set containing over 600 pages, John Jenkins - a 30-year vet of the deal world - brings his humorous M&A stories to bear. Order "Deal Tales" today!

Upcoming Webcasts on TheCorporateCounsel.net: Join us on January 10th for the webcast — "Pat McGurn's Forecast for 2019 Proxy Season" — when Davis Polk's Ning Chiu and Gunster's Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2018 proxy season — and predict what to expect for 2019.

And join us on January 22nd for the webcast — "12 Tricks to Help You During Proxy Season" — to hear Aon's Karla Bos, Intel's Irving Gomez, Gibson Dunn's Beth Ising and Microsoft's Peter Kraus share practical advice on how to enhance your proxy season efforts without sacrificing your sanity.

And join us on February 5th for the webcast — "Conflict Minerals: Tackling Your Next Form SD" — to hear our own Dave Lynn of Morrison & Foerster, Ropes & Gray's Michael Littenberg, Elm Sustainability Partners' Lawrence Heim and Deloitte's Christine Robinson discuss what you should now be considering as you prepare your Form SD for 2019.

And join us on February 19th for the webcast — "Audit Committees in Action: The Latest Developments" — to hear Deloitte's Consuelo Hitchcock, EY's Josh Jones and Gibson Dunn's Mike Scanlon catch us up on a host of new SEC, FASB & PCAOB developments that impact how audit committees operate - and more.

And join us on March 6th for the webcast — "Conduct of the Annual Meeting" — to hear Nu Skin Enterprises' Greg Belliston, The Brink Company's Lindsay Blackwood, Foot Locker's Sheilagh Clarke, Carl Hagberg of the "Shareholder Service Optimizer" and General Motors' Rick Hansen talk about how to best prepare for your annual shareholders meeting.

And join us on May 14th for the webcast — "How to Handle a SEC Enforcement Inquiry Now" — to hear King & Spalding's Dixie Johnson, WilmerHale's Randall Lee and Jones Day's Joan McKown analyze how to handle a SEC enforcement inquiry now.

There is no cost for these webcasts if you are a member of TheCorporateCounsel.net. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up for this no-risk trial online, send us an email at info@thecorporatecounsel.net — or call us at 925.685.5111.

Upcoming Webcasts on DealLawyers.com: Join us on January 29th for the webcast — "Controlling Shareholders: The Latest Developments" — to hear Potter Anderson's Brad Davey, Cravath's Keith Hallam, Greenberg Traurig's Cliff Neimeth and Sullivan & Cromwell's Melissa Sawyer share insights on the standards of review that apply to different types of transactions involving controlling shareholders, key considerations in structuring a controlling shareholder transaction, and how to reduce the risks of controlling shareholder status.

And join us on February 13th for the webcast — "Earnouts: Nuts & Bolts" — to hear Pepper Hamilton's Michael Friedman, Cravath's Aaron Gruber, Fredrikson & Byron's Sean Kearney and K&L Gates' Jessica Pearlman discuss when earnouts make sense, how to effectively structure and negotiate an earnout, and how to avoid the pitfalls that can lead to big post-closing headaches.

And join us on March 12th for the webcast — "Activist Profiles & Playbooks" — to hear Bruce Goldfarb of Okapi Partners, Tom Johnson of Abernathy MacGregor and Damien Park of Spotlight Advisors identify who the activists are — and what makes them tick.

And join us on May 8th for the webcast — "M&A Stories: Practical Guidance (Enjoyably Digested)" — to hear Mayer Brown's Jen Carlson, Baker Bott's Sam Dibble, DealLawyers.com's John Jenkins and Shearman & Sterling's Bill Nelson provide practice pointers as they tell their deal tales.

No registration is necessary — and there is no cost — for these webcasts for DealLawyers.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at info@deallawyers.com — or call us at 925.685.5111.

Upcoming Webcasts on CompensationStandards.com: Join us on January 9th for the webcast — "The Latest: Your Upcoming Proxy Disclosures" — to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about your upcoming pay ratio & say-on-pay disclosures - including the latest SEC positions, as well as how to handle the most difficult ongoing issues that many of us face.

And join us on February 12th for the webcast — "How to Use Cryptocurrency as Compensation" — to hear Perkins Coie's Wendy Moore and Morrison & Forester's Ali Nardali and Fredo Silva discuss the groundswell in the use of cryptocurrency as compensation among private companies — and the legal framework that applies.

And join us on March 14th for the webcast — "The Top Compensation Consultants Speak" — to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance "tell it like it is. . . and like it should be" about all things executive pay related.

And join us on May 7th for the webcast —"Termination: Working Through the Consequences" — to hear Orrick's JT Ho, Pillsbury's Jon Ocker, Equity Methods' Josh Schaeffer and PJT Camberview's Rob Zivnuska discuss how the timing of when an executive officer becomes entitled to severance benefits can impact accounting, SEC disclosures, taxes, say-on-pay and shareholder relations.

No registration is necessary — and there is no cost — for these webcasts for CompensationStandards.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at info@compensationstandards.com — or call us at 925.685.5111.

Upcoming Webcast on Section16.net: Join us on January 23rd for the webcast — "Alan Dye on the Latest Section 16 Developments" — to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.

SEC Adopts Hedging Rules

In late December, the SEC adopted the hedging rules required under Section 955 of Dodd-Frank. The SEC adopted the rules a day before they were supposed to be considered at today's open Commission meeting — and deleted consideration of this topic from the meeting agenda. Except for "smaller reporting companies" and "EGCs" — which get a one-year pass to mid-2020 — the new hedging rules apply to proxies filed during fiscal years beginning after July 1, 2019. Here's the SEC's press release — and here's the 104-page adopting release (we're posting memos in our "Hedging" Practice Area on CompensationStandards.com).

SEC Adopts Reg A for All '34 Act Companies

In late December, the SEC adopted the rules allowing '34 Act reporting companies to rely on the Reg A exemption from registration for their securities offerings. This rulemaking was required by the "Economic Growth, Regulatory Relief and Consumer Protection Act" enacted earlier this year. Here's the SEC's press release — and here's the 34-page adopting release. We're posting memos in our "Regulation A" Practice Area.

ISS Updates "Equity Compensation Plans/Compensation FAQs"

In late December, ISS posted this updated set of FAQs for equity compensation plans, complete with 2019 burn rate benchmarks. There are 8 new or modified FAQs. And ISS also issued its "final" compensation FAQs — the "preliminary" set was issued last month. Here's a blog from FW Cook's Samantha Nussbaum about the final FAQs...

Delaware Chancery Rules "Federal Forum" Provisions Ineffective

Here's news from Richards Layton (we're posting memos in our "Internal Affairs Doctrine/Exclusive Forum Bylaws" Practice Area):

The Delaware Court of Chancery, in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL (Del. Ch. Dec. 19, 2018), has declared "ineffective and invalid" provisions in three corporations' certificates of incorporation that purported "to require any claim under the Securities Act of 1933 to be brought in federal court." Ruling on cross-motions for summary judgment, the Court, by Vice Chancellor Laster, ruled that "[t]he constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware's corporate law. In this case, the federal forum provisions attempt to accomplish that feat. They are therefore ineffective and invalid."

SEC Requests Comment on Earnings Releases & Quarterly Reports

In mid-December, the SEC posted this 31-page request for comment about earnings releases & quarterly reports — and deleted consideration of this topic from the meeting agenda for the next day's open Commission meeting. The SEC released its request for comments — and adopted the hedging rules — ahead of schedule to provide more time for the other rulemakings still on the agenda, which was quite full. We're posting memos in our "Earnings Releases" Practice Area.

Here's some analysis from John:

The number - and depth - of the questions the SEC raises about the relationship between Form 10-Q and earnings releases (29 out of 46) in comparison to those addressing reporting frequency suggests to me that the SEC may be more interested in tinkering with quarterly reporting requirements rather than seriously considering a move to semi-annual reporting.

Also, the SEC's questions surrounding how a change to semi-annual reporting under the Exchange Act would impact Securities Act registration requirements suggest that even if they went to semi-annual reporting, the requirements for Securities Act filings are likely to remain unchanged. There are lots of good reasons why the SEC might do that - but if so, then changing the frequency of 10-Qs would be practically meaningless to any company that wants to preserve its ability to access the capital markets quickly.

SEC Chair Lists Priorities: Includes Proxy Advisors & Shareholder Proposals

In early December, SEC Chair Jay Clayton delivered this speech, where he outlined where the SEC stands on its rulemaking agenda — as well as the priorities for 2019. See Exhibits A & B of the speech for handy charts (and this blog from Davis Polk's Ning Chiu and WSJ article). Key initiatives include:

Reviewing ownership & resubmission thresholds for shareholder proposals — including whether there are factors in addition to the amount of money invested and length of holding period that would reasonably demonstrate the shareholders' interests are aligned with those of long-term investors

Proxy advisor reforms — including transparency, conflicts, whether certain matters should be analyzed on a company-specific basis (rather than market-wide), and investor access to issuer responses to reports

Proxy plumbing — focusing on improvements to the current system, rather than a major overhaul

Cybersecurity — including disclosure controls & procedures, insider trading policies, risk factor disclosures, and the SEC's own cyber-risk profile

Brexit & LIBOR disclosures — SEC is monitoring these risks and whether their impact is adequately disclosed

ICOs — continuing 2018 efforts to protect investors

Quarterly reporting & guidance — studying the current regime to determine whether it can be improved

Capital formation & access to investment opportunities (Jobs Act 3.0) — expanding testing-the-waters and making Regulation A available to public companies

Transcript: "Shareholder Proposals - Corp Fin Speaks"

Due to popular demand, we have posted the transcript for our recent webcast — "Shareholder Proposals: Corp Fin Speaks" — featuring Corp Fin's Matt McNair in record time...

Mandatory Arbitration: The Shareholder Proposals Cometh...

Here comes another salvo in the battle over mandatory arbitration. Recently, John blogged about possible problems with "compelling shareholders to arbitrate" bylaws under Delaware law (here's an article on that topic). Now comes news about shareholder proposals asking companies to adopt mandatory arbitration.

Here's the intro from this WSJ article by Dave Michaels:

Johnson & Johnson is being drawn into a battle over how much freedom shareholders have to sue companies, in a bid by lawsuit opponents to force regulators to pick sides over investors' access to the courts. Hal Scott, a Harvard University professor who represents a trust that owns J&J shares, filed a shareholder proposal with the company that would push shareholder disputes into private arbitration hearings, instead of federal court. J&J doesn't want to bring the proposal up for a shareholder vote, and this week the health-care products company asked the Securities and Exchange Commission for permission to reject it.

Supporters of mandatory arbitration say it would save companies money and time, arguing arbitration would be faster and less expensive than grinding out federal lawsuits involving thousands of investors. Proponents argue that class-action access to the courts is vital for holding corporations and executives accountable to shareholders. "This is an important issue for the capital markets," Mr. Scott said in an interview. "It affects whether private companies want to go public, and whether foreign companies want to list [here]."

About 8.5% of all U.S. exchange-listed companies are projected to be targets of class-action lawsuits in 2018, according to Cornerstone Research, a litigation and economic consulting firm. That is well above the 20-year average of 2.9%, Cornerstone said. Securities class-action lawsuits typically focus on claims that public companies either misled investors about important facts or events, or failed to disclose important information that would have altered shareholders' investment decisions.

Much of the expense is born by existing shareholders, with other shareholders sometimes benefiting from a settlement or judgment. Research into whether such judgments deter future wrongdoing has been inconclusive, said Donald Langevoort, a securities-law expert at Georgetown University. Mr. Scott is seeking to list his proposal for a bylaw change that would require mandatory arbitration on J&J's 2019 proxy statement. J&J shareholders would vote on the measure next year.

J&J wrote the SEC this week asking permission to exclude the proposal from its ballot. Forcing investors into arbitration would violate parts of federal law that forbid asking investors to waive their legal rights, J&J's attorneys wrote. The SEC rules every year on whether companies can omit different shareholder proposals. While public companies could benefit from arbitration, some fear it would offend investors if they were to push too aggressively for it. A J&J spokesman declined comment beyond the company's letter.

SEC Chairman Jay Clayton has said he wants to avoid a brawl over mandatory arbitration that would pit business groups against investors and likely splinter the five-member commission along party lines. Some Republican commissioners say arbitration should be given a shot if stockholders agree with it.

SEC & PCAOB Revive Chinese Auditor Scare

This MarketWatch article by Francine McKenna says it all about this recent joint SEC/PCAOB statement about the lack of regulator access to audits of Chinese companies that are listed in the US.

As the MarketWatch article notes, the SEC & PCAOB haven't told us why they released this joint statement. Was it in reaction to something they know (that we should know)? Francine ponders whether there is some big China auditor fraud brewing and the US regulators will point to this statement as "we have a "disclosure regime" style here and well, we warned you, our hands are tied here." Also see this podcast with Tom Fox & Matt Kelly...

Pay Ratio: Letter from Investor Group to Fortune 500

Here's news from this 'Willis Towers Watson' blog:

Companies preparing for Year 2 CEO pay ratio disclosures now have more questions to consider. Recently, Fortune 500 company compensation committees began receiving a letter from a group of 48 institutional investors requesting them to disclose more information on workforce compensation practices.

The letter posits that since "disclosure of the median employee's pay provides a reference point for understanding the company's workforce," companies should move "to help investors put this pay information into the context of your company's overall approach to human capital management" with more expansive disclosure.

Retail Voting: Enormous Increase at BofA!

Earlier this year, Broc blogged about Bank of America's campaign to increase retail voting — they were donating $1 to Habitat for Humanity for every shareholder account that votes and also featuring online director interviews. This issue of Carl Hagberg's "Shareholder Service Optimizer" reports that the effort was a resounding success — a 41% increase in voters (on top of an 8% increase last year) and over $900k donated. And importantly, a 4% increase in pro-management votes — this can make a big difference, especially for say-on-pay. Here's how BofA maximized its results:

— First and foremost is the marketing truism that to get results you need to "repeat, repeat and repeat" your message.

— Equally important, you need to position your messages prominently — so they will be noticed right off the bat. BofA did a masterful job of this last year with its inaugural "Special Olympics" campaign. And this year, the message was even more prominently and frequently displayed. It was the very first — and very attention-getting — thing that shareholders saw when they received & opened the proxy package.

— Of course, the message needs to be a compelling one. Here, BofA hit a bases-loaded home run by choosing excellent and non-controversial charities last year & this year.

— Most compelling, however, were the attention-getting numbers: BofA was able to report that $650,000 had been donated to the Special Olympics last year — and that, we think, was a major motivating factor behind the huge number of new people who got on the bandwagon this year. (Next year, a $1 million goal will keep voters on the ranch — and will generate a lot more new participation, we feel certain.)

Carl also notes that BofA worked to increase the always hard-to-get "Employee Plan" votes. Not only did they post an educational video and email voting reminders, but they created a single "landing platform" for all employee plan accounts. The platform allowed employees to vote all of their positions through a single set of voting actions.

More on "Comment Trends: Corp Fin's 'Top 10'"

Not too long ago, we blogged about trends in Corp Fin comment letters. We've since posted a few additional resources in our "Comment Letters" Practice Area — including this interactive summary from PwC and this 191-page roadmap from Deloitte.

This Audit Analytics blog reiterates that the overall number of comment letters has been declining for nearly a decade — but companies should stay attuned to perennial favorites (MD&A, non-GAAP) & trending topics (revenue recognition). The blog is particularly helpful because it includes sample comments — like these, which deal with revenue recognition:

— We note your disclosure regarding three performance obligations under your franchise agreements. It appears that you have concluded that these items are not distinct and therefore are not separate performance obligations given your conclusion that they are highly interrelated. Please revise your disclosure to clarify your conclusions. Reference 606-10-25-22.

— Please revise your disclosure to provide your accounting policy on revenue recognition as a result of your implementation of FASB ASC 606. Please refer to the guidance in FASB ASC 606-10-50 and Article 10 of Regulation S-X.

— Please revise your disclosure to provide your conclusion on the effectiveness or ineffectiveness of your Disclosure Controls and Procedures. In addition, please provide a detailed discussion on how the non-disclosure of your revenue recognition policy in the Form 10-Q affected your conclusion.

Latest Stats: S&P 500 Political Spending Disclosure

The latest "CPA-Zicklin Index" reviews disclosure policies & practices on political spending by the S&P 500. Here's a summary of its findings on election-related spending disclosure:

— 294 S&P 500 companies disclosed some or all of their election-related spending, or prohibited such spending in 2018, compared with 295 for 2017.

— When these numbers are broken down further, 231 companies disclosed some or all election-related spending in 2018, compared to 236 such companies in 2017. Turnover in the S&P 500 influenced this fluctuation significantly.

— In 2018, 176 companies prohibit at least one category of corporate election-related spending, a sizable increase from 158 companies in 2017, 143 companies in 2016 and 125 companies in 2015.

This WSJ article has more details on the survey's findings regarding corporate political spending & disclosure.

SEC Chief Accountant: Recommendations for Your Financial Reporting Role

In connection with the early December AICPA conference, SEC Chief Accountant Wes Bricker provided this statement on financial reporting & auditing issues that he's been discussing with SEC Chair Jay Clayton and others. As you'd expect, a lot of the statement is aimed toward auditors — e.g. what they should be doing to improve quality. But the statement also emphasizes the role of companies in the financial reporting process — with plenty of recommendations for audit committees and management:

Internal controls — particularly where there are close calls as to a significant deficiency or material weakness, audit committees should pay extra attention to the adequacy of & basis for the company's ICFR assessment, and seek training if necessary (citing this enforcement action). It's vital to focus not just on actual misstatements but also whether it's reasonably possible that a material misstatement won't be prevented or detected in a timely manner.

Also remember that it's the company's responsibility to develop, maintain & assess ICFR — and that the thresholds for auditor attestation don't change these requirements (it's not obvious whether this remark is intended to foreshadow a change to the attestation requirement, which was discussed as a future possibility when the SEC increased the smaller reporting company threshold and in today's Senate testimony by SEC Chair Jay Clayton). This blog from Cooley's Cydney Posner reports that several members of the OCA Staff also discussed internal controls issues at yesterday's AICPA Conference — with tips on how to assess controls and how to adequately disclose a material weakness.

CAMs — conduct a "dry run" so that the auditors & audit committee can discuss issues. It's also important to understand that CAMs aren't intended to duplicate management's MD&A disclosure of critical accounting estimates.

Continuing education for audit committees — audit committee members must have time, commitment and experience to do the job well. Just possessing financial literacy may not be enough to understand the financial reporting requirements fully or to challenge senior management on major, complex decisions. Audit committees must stay abreast of these issues through adequate, tailored, and ongoing education.

Audit committee agendas — must be balanced toward understanding accounting, ICFR and reporting requirements. For example, as business, technology, accounting, and reporting requirements change, it is crucial that the audit committee understand management's approach for designing and maintaining effective internal controls.

Voluntary disclosure — OCA Staff encourages audit committees for listed public companies of all sizes to communicate how the listing requirements related to the "appointment, compensation, and oversight of the work of any registered public accounting firm. . ." are carried out, especially among smaller companies. There are positive disclosure trends among S&P 1500 companies when it comes to disclosing considerations in appointing the audit firm, fee negotiations and evaluations — but there are opportunities for more progress among mid- and small-cap companies.

Company processes to ensure auditor independence — emphasizing the role of companies to promote compliance by regularly monitoring corporate structural changes or other operational events that may result in new affiliates or business relationships and timely communicating these changes to the auditor, as well as evaluating the sufficiency of these monitoring processes & practices. Also note that the OCA Staff is assessing comments on the auditor independence "loan" rule — final rulemaking is expected in 2019.

Auditor communications — to enhance oversight, audit committees should consider requesting additional voluntary information from the auditor to understand their level of investment in quality control functions, the connection of technology to audit quality and how audit firm performance compares to others.

New GAAP standards — continue to focus on implementing & refining compliance with new standards on revenue recognition, leases & current expected credit losses

The First CAM

Hat tip to Steve Quinlivan for finding the first CAM in this SEC filing from Church Capital Fund:

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

As discussed in Note 3 to the financial statements, the financial statements include investments valued at $8,658,675 (49% of net assets) as of September 30, 2018, whose fair values have been estimated by management in accordance with policies approved by and under the general oversight of the Board of Trustees in the absence of readily determinable fair values.

The principal considerations for our determination of the investments whose fair values have been estimated by management in accordance with policies approved by and under the general oversight of the Board of Trustees in the absence of readily determinable fair values are that auditing these investments involved our complex and subjective judgment and the investments are material to the financial statements as a whole.

Our audit procedures related to these investments included the following procedures, among others to address the critical audit matter: We tested the effectiveness of the controls over the Fund's valuation methodologies and evaluated the relevance of the qualitative components embedded in the methodology models. We also agreed underlying supporting documentation from outside specialists where applicable, agreed to actual empirical sales data as available and tested the computational accuracy of the models.

CAMs: Lessons Learned & Illustrative Example

This new publication from the "Center for Audit Quality" is useful. It presents early lessons learned from "dry runs" that auditors have conducted on critical audit matters. It also contains an illustrative example of a CAM, along with a set of new questions to foster dialogue and understanding of the impact that CAMs will have on the audit process. See this Cooley blog...

IRS Issues Section 83(i) Guidance

Over on CompensationStandards.com, we blogged about new Section 83(i) of the Internal Revenue Code — it allows private company employees to defer taxes for up to five years from the exercise of a stock option or settlement of a RSU. Recently, the Treasury Department & IRS issued this notice about this new provision. This memo from Davis Polk outlines the key takeaways (we're posting memos in our "Restricted Stock" Practice Area on CompensationStandards.com):

— The measurement period to determine whether the employer satisfied the eligibility requirement that 80% of U.S. employees received grants is measured on a single calendar year basis and does not take into account grants made in prior years

— Employers must withhold taxes at the maximum individual rate in effect at the time the stock with respect to which a Section 83(i) election has been made (deferral stock) is treated as received in income and will be treated as a noncash fringe benefit, which will provide employers additional time to collect amounts required to be withheld from employees

— The employee and employer must agree to place deferral stock in escrow to ensure that applicable withholding taxes are deducted

— An employer may opt out of Section 83(i) by not establishing an escrow arrangement

Conference Calendar

What's New on Our Websites

Among other new additions, during the last month we have posted the following:

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