SEC Chief Accountant Gives Speech on Effective Financial Reporting in a Period of Change

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On November 14, 2017, SEC Chief Accountant Wesley R. Bricker gave remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change. Mr. Bricker began his speech by discussing the SEC’s focus on maintaining fair capital markets and the far reaching impact of the SEC’s reporting requirements. Highlights of the speech include the following:

  • New GAAP Standards: Mr. Bricker highlighted new GAAP standards in the area of revenue, leases and financial instruments, and he indicated that the SEC Staff is available for consultation on the new standards.
    • The new revenue standard was first released in 2014 but is now in the final stage of implementation. Mr. Bricker stressed the importance of effective internal controls during this transition period. He also suggested that applications of the new standard should be supported by proper documentation.
    • The new lease standard will be effective in 2019 for calendar-year companies and will result in assets and liabilities being recorded for most leases. Both the revenue and lease standards require reasonable judgment in certain areas and Mr. Bricker noted that while not required, a best practice is for companies to commence efforts to implement the new leases standard concurrently (or partially concurrently) with the new revenue standard.
    • Finally, with respect to the credit loss standard, FASB’s goal was to improve the usefulness of financial instrument reporting for users of financial statements. To do this, FASB developed a credit loss model that results in timelier reporting of credit losses. Bricker expressed his support for the review by U.S. prudential regulators, called upon by the U.S. Treasury, with a view towards harmonizing the application of the credit loss standard with regulators’ supervisory efforts.
  • The Auditor’s Reporting Model: Mr. Bricker next discussed the SEC’s recent approval of a new PCAOB standard which will result in substantial changes to the independent auditor’s report. He explained that these changes stem from input received over the last seven years and that the changes were unanimously approved by the SEC. One such change is that beginning with auditors of fiscal years ending on or after June 30, 2019, reports on large accelerated filers will include communication about critical audit matters. This requirement will cause the auditor to provide his or her perspective on matters that were communicated with the audit committee and involve subjective or challenging cases of judgment. Mr. Bricker encouraged auditors to update their methodologies, provide training, and, at the engagement team level, use the transition period for the implementation of the new standard to engage in dialogue with audit committees so that audit committees have time to understand the types of matters that may be communicated as critical audit matters in the audit reports. Bricker also indicated that during the phased effective dates (audit reports with communication of critical audit matters will be required for large accelerated filers 18 months before being required for all others) the SEC Staff will review carefully the results of the post-implementation procedures and work with the PCAOB as it considers whether additional changes to the requirements are needed, including to the implementation date for non-large accelerated filers.

A copy of the speech is available at: https://www.sec.gov/news/speech/speech-bricker-2017-11-14.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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