Monthly Archives: May 2022

May 31, 2022

Restatements Soared in 2021 – And It’s All On SPACs!

Last year, Audit Analytics reported that 2020 saw the lowest percentage of financial restatement disclosures (Big R & Little r) in the 20 years that Audit Analytics has been monitoring those disclosures. According to this year’s report from Audit Analytics, things were very different in 2021. Restatements soared, and you can blame that entirely on SPACs. Here are some of the highlights:

– After declining for many years, the total number of restatements and the number of unique companies that disclosed a restatement last year rose to their highest levels since 2006. Total restatements increased by 289%, and unique companies that disclosed a restatement rose by 194%.

– The number of restatements filed increased significantly to 1,470, due to SPAC restatements. 77% of all restatements last year were SPAC-related, and excluding those restatements, there was a 10% year-over-year decrease.

– 62% of restatements were “Big R” reissuance restatements. Again, SPACs distort the picture here – backing out SPAC restatements, 24% were Big R, but that’s still up 3% over the prior year.

– The top reason for restating last year in both SPAC & non-SPAC settings was debt and equity accounting issues. Revenue recognition held the top spot for each of the three prior years

As always, the report contains a lot of other data on restatements, including the impact of restatements on net income, the average length of time required to restate financials and the average days restated.

John Jenkins

May 31, 2022

Investor Advocate Rick Fleming to Leave SEC

On Friday, the SEC announced that Investor Advocate Rick Fleming will be leaving the agency effective July 1, 2022.  He was appointed to serve as the first director of the Office of the Investor Advocate in 2014 and has served in that capacity for the last eight years. This excerpt from the SEC’s announcement summarizes his accomplishments:

As the Investor Advocate, Mr. Fleming has built an office responsible for assisting retail investors in their interactions with the Commission and self-regulatory organizations (SROs), analyzing the impact on investors of proposed rules and regulations, identifying problems that investors have with financial service providers and investment products, and proposing legislative or regulatory changes to promote the interests of investors. In addition, he has introduced a new program to utilize surveys and other research methods to help the Commission understand the needs of investors.

One thing that Rick Fleming has not been during his tenure is a shrinking violet. Among other things, he’s been an outspoken critic of dual class structures & has recently called upon the stock exchanges to tighten SPAC listing standards. OIA Chief Counsel Marc Sharma help administer the Office’s functions until a new Investor Advocate is appointed.

John Jenkins

May 31, 2022

The Worst Job at the SEC?

There seem to be plenty of interesting and engaging jobs at the SEC, but there are two that I know for sure I’d never want.  The first is the poor soul who picks up the phone at the number the SEC tells you to call when EDGAR is on the fritz, and the second is the person in charge of the SEC’s social media accounts. In fairness, the problem doesn’t appear to be all of the SEC’s social media accounts – just those on Twitter, the world’s most popular “rage-as-a-service” platform.

Any tweet, no matter how innocuous, from the SEC or any of its commissioners results in an avalanche of frothing-at-the-mouth replies from the most unhinged corners of the Internet.  For instance, check out the replies to this tweet announcing the very controversial news that last week’s open meeting was about to start.

See what I mean?  The typical person who shows up in the mentions seems to a crypto-meme stock enthusiast and devoted Alex Jones listener who’s convinced that Gary Gensler, Jay Clayton and Bill Hinman are corrupt acolytes of the New World Order and that they were also probably involved in the JFK assassination.

How’d you like to have to deal with this stuff every time you tweeted something?  Can you imagine when this poor slob gets home from work – “How was your day, dear?” “Well, not too bad – @cryptocthulhu666 and @diamondhandsboredape only posted 12 memes of Gary Gensler in a clown suit today.”  Maybe this kind of job is your cup of tea, but I’ll take a hard pass!

Oh, and it doesn’t appear to pay to court these folks.  Commissioner Peirce has been viewed as a champion by many in the crypto-crowd, and she accepted the “Crypto Mom” moniker they bestowed upon her with grace & good humor.  But that still didn’t stop the Internet people from creating a bunch of scam Instagram accounts under her name.

John Jenkins

May 27, 2022

4th Annual “Cute Dog” Contest…

A couple years ago, we ran our 1st, 2nd and 3rd Annual “Cute Dog” Contests. We had to hit pause while John recovered from his disappointment. But as we head into a weekend of remembrance, at the end of a couple of very long & difficult weeks, it’s time to pick back up with a short slate of contestants. We’ve even welcomed a cat entry, to keep things interesting!

The poll is at the bottom of the blog. Send us your pet pics for our next poll, and compete for your chance at fame and notoriety!

1. Orrick’s Soo Hwang – Chuck & Doug, the “Party Animals”

2. Our own Emily Sacks-Wilner – Simba the “Supervisor”

3. My Dog-Nieces – Dot & Josie, the “Dynamic Duo”

Vote Now: “Cute Dog” Contest

Vote now in this anonymous poll for the dog (or cat!) that you think is the cutest:

Liz Dunshee

May 27, 2022

Non-Audit Services: EY Considers a Breakup

In what could be a very bold move – with possible repurcussions for other audit giants – EY is reportedly considering a split of its audit & advisory businesses. That’s according to this WSJ article, which likens the magnitude & impact of this change to the collapse of Arthur Andersen. Here’s more detail from the WSJ:

How exactly the restructuring would work isn’t clear. The split could bolt some services, such as tax advice, onto the pure audit functions, one of the people familiar with the discussions said. The breakaway firm could then offer consulting and other advisory services to nonaudit clients.

Any change would have to be approved by a vote of the partners world-wide. EY’s global network consists of separate firms in each country that share technology, branding and intellectual property.

EY conducts a strategic review of its business lines every couple of years in which it weighs regulation, technology developments and competition with other firms, the people said.

As I blogged a few months ago, the SEC was conducting an enforcement sweep on conflicts of interest at the big audit firms. Last fall, the SEC’s Acting Chief Accountant also reminded auditors & audit committees of the importance of auditor independence. The concern is that consulting and other non-audit services may cloud independence and influence judgment on financial audits – and consulting relationships are continuing to grow.

This breakup would be a big deal if it happens – but it wouldn’t be completely novel. The article points out that Big Four firms are already splitting off audit operations from the rest of their services in the UK, due to regulatory demands there and scandals – and people have been predicting it could happen here too, for at least a couple of years. This actually wouldn’t even be the first time that EY has broken off a consulting arm – it sold its IT consulting division to France’s Cap Gemini 22 years ago. WilmerHale’s David Westenberg pointed out that the potential EY split is essentially what Andersen/Accenture did circa 2000, before Enron.

Liz Dunshee

May 27, 2022

China-Based Companies: Audit Inspections at “Critical Juncture”

Earlier this week, YJ Fischer, Director of the SEC’s Office of International Affairs, used this speech to sound alarm bells with respect to the continued listings of China and Hong Kong-based companies. Here’s an excerpt with the four main points:

– First, PCAOB-registered public accounting firms must provide the PCAOB with access to their audit work papers, and, any claim that audit work papers cannot be produced because they contain national security materials is questionable at best;

– Second, although there have been ongoing and productive discussions between US and Chinese authorities regarding audit inspections and investigations, significant issues remain and time is quickly running out;

– Third, even if US and Chinese authorities reach an agreement in the near future to commence PCAOB audit inspections and investigations in China and Hong Kong—and I want to emphasize this point—such an agreement will only be the start towards satisfying the PCAOB’s statutory mandate; and

– Finally, should the issuers or the relevant Chinese authorities wish, they can effectuate the voluntary delisting of China-based issuers that they deem “too sensitive to comply” with PCAOB requirements, but allow other companies and audit firms to comply fully with the PCAOB inspection and investigative processes, thereby allowing the remainder of China-based issuers to avoid potential trading prohibitions in the US.

The speech includes a good refresher on the Holding Foreign Companies Accountable Act, which was passed in 2020:

– First, the HFCAA directs the PCAOB to determine whether it is unable to inspect or investigate completely registered firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.

– Second, the HFCAA directs the SEC to identify issuers that file annual reports that include an audit report prepared by auditors covered by the PCAOB’s determination.

– Finally, after three consecutive years of an issuer being identified by the Commission under this process, the HFCAA requires the SEC to impose a trading prohibition on the securities of those issuers.

Since the HFCAA was signed into law, the PCAOB has determined that there are two jurisdictions — China and Hong Kong — where local authorities prevented the PCAOB from inspecting or investigating audit firms completely. And, in a largely administrative process, the SEC has commenced the process of identifying issuers that have filed annual reports with an audit report prepared by an audit firm in a jurisdiction subject to the PCAOB’s determination under the HFCAA. These issuers may face potential trading prohibitions and, ultimately, delisting as soon as 2024. As of May 20, 2022, the Commission had conclusively identified 40 such issuers.

It has been a very busy week for HFCAA determinations, because there are now 128 conclusively identified issuers and another 20 that have been provisionally identified. When I checked in on this two months ago, there were no conclusively identified issuers and only 6 “maybes”! The list already includes Baidu and Weibo. Eventually, it will likely include all China-based stocks that trade on US exchanges, including Alibaba.

This Bloomberg article says that some analysts think that the Chinese & US governments may be able to strike a deal that would avoid delistings – but it could take a year to work that out.

Liz Dunshee

May 26, 2022

SEC Takes Aim at Greenwashing

At an open meeting yesterday, the SEC issued a pair of proposals that would affect disclosure and portfolio policies of so-called “ESG” funds. Lawrence summarized both of these proposals on Here’s an excerpt with thoughts on the “trickle-down” effect that this could have on companies:

Investment fund compliance can get very complex, very fast – so I’m not going to get into the weeds here. For companies that might be included in fund portfolios, these rules are yet another sign that the SEC is cracking down on perceived “greenwashing” in an industry that reached $2.78 trillion in assets during the first quarter of this year, up from less than $1 trillion only two years ago, according to this WSJ article and Morningstar data. These proposals follow an enforcement action against an ESG investment fund earlier this week.

With investors under pressure to prove their ESG credentials and provide enhanced disclosure, they’ll in turn be passing more information requirements along to portfolio companies. That means it’s more important than ever to be in regular conversation with your investors, so that you aren’t caught flat-footed by information requests – and to stay in line with peers and emerging best practices (because demands can accelerate quickly).

It also means there’s an opportunity for ESG-focused companies that are seeking capital. There may be a big rush to ESG assets if funds are faced with the choice between compliance or a name change. The ESG investment fund space may also shrink, which is what happened in the EU when regulators realized that so-called ESG funds were not actually performing screens. As I noted in my book, Killing Sustainability (available to members on our “Guidebooks” page):

The EU Commission passed the Sustainable Finance Disclosure Regulation (SFDR), which became effective March 2021. in anticipation of the effective date, however, ESG-tagged investments in Europe shrank by $2 trillion from $14 trillion in 2018 as funds deleted references to ESG, responsible or green in their names/descriptions.

Comments for both of the proposals are due 60 days after the date the proposal is published in the Federal Register. It is interesting that this proposal was given a 60-day comment period initially, in contrast to the climate disclosure rule.

Liz Dunshee

May 26, 2022

State Street’s Annual Stewardship Report

State Street Global Advisors recently issued its annual stewardship report. The 80-page recap details 2021 engagements, voting activity, and explains how SSGA’s ESG function is organized (and new headcount). It gives clues on what to expect in the off-season and next year. Here are some excerpts:

Climate Transition: We are planning a targeted engagement campaign in 2022 to encourage the most significant carbon emitters that we invest in to disclose climate transition plans. SSGA is concerned about “brown-spinning” and wants to see responsible transition planning. The report highlights case studies beginning on page 39. Interestingly, SSGA supported 84% of say-on-climate proposals worldwide, but continues to have reservations that it will insulate directors from accountability.

Board Gender Diversity: In 2022, we expect that all companies we invest in, across the globe, will have at least one woman on their board. If we do not see companies engaging on this topic, we are prepared to vote against the Chair of the board’s Nominating Committee or the board leader. Additionally, beginning in the 2023 proxy season, we will expect boards to comprise at least 30% women directors for companies in major indices in the US, Canada, UK, Europe, and Australia.

R-Factor: We currently vote against companies that fail to improve their R-Factor score and show no signs of taking action to improve their score. In 2022, we will continue to vote against companies where we do not see action to improve their score; we will now also vote against companies that show a downward trend in their R-Factor scoring as well as those that consistently underperform their peers in the same market sector.

2022 Engagement Priorities: We will continue to focus on our key stewardship priorities of climate change, diversity, equity and inclusion, human capital management, and effective board leadership. This commitment is clearly demonstrated through material changes to our voting policies. In 2022, we expect to ask companies to report against the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD), and we will publish our own TCFD report. This year we announced that in the upcoming 2022 proxy season we will take voting action against responsible directors if (1) companies in the S&P 500 and FTSE 100 do not have a person of colour on their board and (2) companies in the S&P 500 do not disclose their EEO-1 reports.

Liz Dunshee

May 26, 2022

The SEC’s (Possible) New Commissioners: Nomination Hearing

Last week, the Senate Banking Committee held a hearing to consider the nomination as SEC Commissioners of:

– Jaime Lizarraga – whose testimony included comments on facilitating capital formation for small businesses and keeping pace with rapid technological change, and

– Mark Uyeda – whose testimony emphasized his state-level securities regulation experience (in California) and the need for start-up financing and capital formation.

This Thomson Reuters article says that Jaime and Mark cruised through the hearing and skillfully dodged controversial Q&A – there are “no obvious roadblocks to confirmation in sight.”

Liz Dunshee

May 25, 2022

Human Capital: Lawmakers Push SEC to Require Expansive Standardized Data

Congresswoman Maxine Waters (D-CA), who chairs the House Financial Services Committee, and Senator Sherrod Brown (D-OH), who chairs the Senate Banking, Housing & Urban Affairs Committee, are calling for more prescriptive human capital disclosure rules. . . and more. Earlier this week, the lawmakers sent this letter to SEC Chair Gary Gensler, saying:

We write to urge the Securities and Exchange Commission (SEC) to require the disclosure of standardized data of race, ethnicity, gender, sexual orientation, and disability status. As the SEC continues to update its disclosure rules to ensure today’s investors have reliable data to make informed investment decisions, such data should be included in all future rulemaking related to human capital management and diversity.

The letter notes the increase in voluntary disclosure of EEO-1 data in response to investor initiatives and says that rulemaking would align with the SEC’s mission to protect investors, ensure fair, orderly, and efficient markets, and facilitate capital formation. But perhaps the most striking part of this letter is that it pushes for info not only at the board, executive, and workforce levels – but also when it comes to supplier diversity and procurement data.

That new & expansive aspect of “human capital” apparently stems from this 68-page report from last December that was focused on the practices of investment firms. The legislators then cite to the “ESG Disclosure Simplification Act” that was passed by the House Committee last year. Despite this letter being only 2 pages in length, there are a lot of “asks” to unpack here.

The SEC’s current Reg Flex Agenda, which reflects the priorities of the chair, shows that there may be a proposal in the works on human capital management disclosure. In light of the current murmurings about SEC rulemaking authority, I’d be surprised if any proposal went as far as this letter urges… but you never know.

We’ve been tracking human capital management oversight & disclosure since way back when the Human Capital Management Coalition first petitioned the SEC for rulemaking on this topic. Visit our Practice Area for lots of practical resources. If you don’t have member access, email

Liz Dunshee