Heads Up — Highlights of the 2013 AICPA conference on current SEC and PCAOB developments
Annually, the AICPA hosts a three-day conference featuring speeches by, and question-and-answer sessions with, members of the SEC, PCAOB, FASB, IASB, and other professional groups. This Heads Up extracts key insights from material presented during this year’s AICPA national conference on current SEC and PCAOB developments.
Braving the snowy weather, accountants, auditors, and others made their way to Washington, D.C., for this year’s AICPA conference. The three-day event, which began on December 9, featured insights from numerous speakers and included discussion panels on current accounting, reporting, and auditing practice issues.
Transparency and quality of financial reporting were again significant conference themes because of their important role in protecting investors. Several speakers referred to this objective in the context of improving disclosures in registrants’ filings, evaluating internal controls, executing high-quality audits, and developing standards that reduce complexity and increase transparency.
The staff in the SEC’s Division of Corporation Finance reminded registrants that by using disclosures to fully "tell their story," they can improve the transparency of their reporting, especially regarding significant judgments. In addition, the SEC staff highlighted the importance of (1) emphasizing material matters and reconsidering disclosures about potentially immaterial matters so that investors do not attach undue significance to them; (2) clearly disclosing accounting policies, especially when alternatives exist under U.S. GAAP; (3) appropriately "connecting the dots" to avoid inconsistent disclosures by considering interrelated disclosures within (and outside) registrants’ filings; and (4) providing balanced disclosures and appropriate context for them. Echoing remarks about "disclosure overload" in a recent speech given by the newly appointed SEC chairman, Mary Jo White, various members of the SEC staff reiterated that registrants should assess materiality when considering their disclosures and clarified that the staff’s comments to registrants on MD&A matters are not necessarily asking for more disclosure but for clearer, more precise, and more transparent disclosures about material matters.
Paul Beswick, chief accountant in the OCA, recounted investors’ frustrations that accounting standards are too complex and urged the FASB to consider complexity in its standard-setting agenda and development of accounting standards. FASB Chairman Russell Golden discussed related to the Board’s process for determining its standard-setting agenda. These include (1) looking for opportunities to reduce complexity and (2) continuing to ask investors whether wholesale changes are needed or targeted improvements to existing standards are more appropriate. Mr. Golden cited the joint revenue recognition project as an example of how efforts are being made to reduce complexity in financial reporting. He noted that through the FASB’s and IASB’s joint efforts, "scores of pieces of accounting literature in which revenue was recognized in dozens of different ways, depending on the industry," were put into a single standard "so that the same principles will apply to everyone." Mr. Golden also indicated that the Board would continue to work with the IASB and, as an example, cited the creation of joint transition resource groups to foster effective implementation of joint FASB and IASB convergence projects.
The topic of incorporation of IFRSs into the U.S. financial reporting system for public companies was also discussed. While SEC representatives made no announcements about whether and, if so, how and when IFRSs will be incorporated, Mr. Beswick noted that the SEC staff continues to evaluate its IFRS work plan; however, the staff’s focus has been on its rulemaking responsibilities under the Dodd-Frank and JOBS Acts. IASB Chairman Hans Hoogervorst (1) detailed the the IASB has made in addressing concerns raised by the SEC staff in its final report on the incorporation of IFRSs and (2) called on the United States to act in "enlightened self-interest" by incorporating IFRSs into the U.S. financial reporting system.
Another significant topic at the conference was auditor transparency and the importance of conducting high-quality audits. PCAOB Chairman James Doty stated, "It is the flow of expertly vouched-for information that, when perceived as both relevant to investment decisions and reliable, gives uninformed, diverse and dispersed investors the confidence to participate in a market as great as that which we enjoy in the U.S." He further noted that as part of its plan to increase transparency and improve audit quality, the PCAOB expects to (1) increase analysis of inspections, (2) enhance the usefulness of the PCAOB’s inspection reports, (3) monitor the efforts of its recently formed Center for Economic Analysis, and (4) continue to work on its standard-setting agenda. In particular, Mr. Doty and other PCAOB staff members discussed their focus on the auditor reporting model and its audit transparency standards, noting that the latter would require audit firms to disclose the name of the audit engagement partner and other firms that helped perform the audit. Like the FASB, the PCAOB will also continue to emphasize outreach and cost-benefit analysis in developing its standard-setting agenda.
Other prominent themes at the conference were enforcement activities and FCPA. Ms. White, a former federal prosecutor, has indicated that her enforcement initiative includes obtaining admissions of wrongdoing in settlements of the most egregious cases, investigating minor violations, pursuing individual offenders, and increasing the staff’s focus on accounting-related fraud. Speakers from the SEC highlighted the recently formed Financial Reporting and Audit Task Force and how it will use technology-based tools (e.g., its accounting quality model) to analyze electronic data — potentially including XBRL tags — for accounting anomalies, possible fraud, and other "outlier" information.
These themes, and other topics from the 2013 conference, are discussed in the attached Heads Up.