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The annual AICPA Conference on Current SEC and PCAOB Developments was held in Washington, D.C. last week, and included representatives of the Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
Mary Jo White, Chair of the SEC, and James Schnurr, Chief Accountant of the SEC both discussed the importance of preparers maintaining high-quality, reliable financial reporting. They also stressed that management’s ability to fulfill its financial reporting responsibilities depends on the design and effectiveness of internal control over financial reporting (ICFR).
Members from the SEC also commented on the use of non-GAAP measures and disclosure effectiveness. The SEC staff urged preparers to use caution when providing non-GAAP disclosures to ensure there is no more prominence given to the non-GAAP measure than the relevant GAAP measure. As it relates to disclosure effectiveness, Congress recently passed the Fixing America’s Surface Transportation Act, or FAST Act, which contained a number of SEC-related provisions, including one for the Commission to study the requirements of Regulation S-K. The Division of Corporation Finance also discussed its Disclosure Effectiveness Project, which includes review of disclosures required under Regulation S-X.
James Doty, Chairman of the PCAOB, discussed the recent work of the PCAOB and the continued areas of focus in the future. Mr. Doty indicated that the global inspection efforts of the PCAOB continued to grow. The PCAOB is currently conducting inspections in many countries in Europe, Latin America, Canada, Africa, Australia and Asia. China is an exception due to the pilot inspection program proving to be significantly more difficult than anticipated.
Martin Baumann, PCAOB Chief Auditor and Director of Professional Standards, provided an update on specific initiatives of the PCAOB, including the following:
Jay Hanson, PCAOB Board Member, also discussed the auditor reporting model and the auditor’s use of specialists. Mr. Hanson also discussed the PCAOB’s efforts on audit quality indicators (AQIs), and the need for the PCAOB to validate which AQIs have the strongest correlation to high-quality audits.
The conference also included panel discussions surrounding ICFR, MD&A and cybersecurity. The overarching theme of the ICFR panel was the importance of understanding the nature and precision of management’s review controls and appropriately applying a top-down risk-based approach in accordance with PCAOB AS No. 5. The panel on MD&A discussed using the MD&A to tell a company’s stakeholders its story and stressed the importance of communication amongst departments to make sure disclosures are consistent. Cybersecurity has been a hot topic the last few years as a result of major breaches. Panelists explained that cybersecurity is not just a technology issue, and recommended that companies make investments in people and processes to be proactive in addressing cyber-risk.
Preparers and auditors both play a critical role in spearheading the initiatives of the SEC and PCAOB. Preparers must continue to focus on high-quality financial reporting through enhancing disclosures and ensuring appropriate design and effectiveness of ICFR. As auditors, we must continue to hold ourselves to a higher standard in conducting high quality audits with the goal of providing assurance to the investing public.
Visit the SEC’s website to read the chair and staff full text remarks and visit the PCAOB’s website to read full text remarks given by the board and staff.
Contact us with questions about the SEC or PCAOB and/or services that Schneider Downs can provide for public companies.
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