On August 26, 2025, the Securities and Exchange Commission’s Office of the Inspector General (“OIG”) issued a report entitled “Improved Documentation and Guidance Can Help Strengthen Corporation Finance’s Disclosure Review Program.” By way of background, the Disclosure Review Program (the “DRP”) forms the backbone of the Division of Corporation Finance’s work, and consists of the selective review of the disclosures—typically the annual reports—of the more than 7,400 companies required to regularly file financial reports with the SEC. The DRP (i) is required to review a company’s annual report at least once every three years,[1] although it may do so more often based on risk factors, and (ii) reviews certain transactional filings. Reviews vary as to substance and depth, ranging from a complete review of all of a company’s recent filings to a “targeted” review of a specific issue in a transactional filing. The OIG’s report on the DRP highlighted the following issues:
- Documentation of, and guidance on, selection and scoping of annual report reviews: According to the OIG, “documenting how and why the DRP selects and scopes its reviews is important for investor protection because it ensures that the DRP appropriately considers and incorporates risk into its decision-making by providing transparency that would contribute to effective oversight.” The OIG found that staff lacked definitive internal guidance on selecting companies for review, scoping such reviews, and documenting their decisions. In addition, draft internal guidance did not address five of the six risk factors the SEC must consider when selecting companies to review.[2] The OIG recommended that the Division’s management require that important information about the selection and scoping of annual report reviews be documented. In response, the DRP plans to formalize the DRP’s interpretation of sections 408(b) and (c) of the Sarbanes-Oxley Act of 2002, regarding the selection and timing of financial statement reviews, by November 2025.
- Changes in the DRP workforce may lead to a loss of institutional knowledge: Noting that recent staffing and organizational changes were outside the control of the Division, the OIG’s report noted that, nonetheless, the loss of long-time Staff can lead to loss of institutional knowledge, which could be compounded by the challenges of documentation of Staff decisions, as noted above.
- Changes in the regulatory environment: As evident from the SEC’s Spring 2025 Agenda, published September 4 (read about it here), the SEC plans to increasingly focus on crypto and other new rules, all changes which could potentially impact both the substance and volume of issuers’ filings, and, therefore, the work of the DRP. This underscores the need for improved documentation of decisions and processes and consistent use of internal guidance. To this end, the Division’s management agreed to consider developing a plan that prioritizes DRP goals and requirements in the event of significant staffing decreases and/or significant workload increases.
It is important to note that the Division’s management concurred with the recommendations and the proposed changes in the report, such that the OIG considers the recommendations resolved and to be closed upon verification of appropriate action by the Division. On a personal note, as a former DRP-staffer, I wholeheartedly believe in the commitment of the Division’s management and Staff to doing their best work on challenging tasks in rapidly changing, high-pressure circumstances.
Read the OIG’s Report here.
[1] Section 408(c) of the Sarbanes-Oxley Act 2002.
[2] Section 408(b) of the Sarbanes-Oxley Act of 2002 requires the SEC to consider, “among other factors: (1) issuers that have issued material restatements of financial results; (2) issuers that experience significant volatility in their stock price as compared to other issuers; (3) issuers with the largest market capitalization; (4) emerging companies with disparities in price to earning ratios; (5) issuers whose operations significantly affect any material sector of the economy; and (6) any other factors that the Commission may consider relevant” in selecting companies for regular reviews.
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