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Heads Up — Highlights of the 2012 AICPA national conference on current SEC and PCAOB developments

Published on: Dec 11, 2012

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Annually, the United States' AICPA hosts a three-day conference featuring speeches by — as well as panel discussions and question-and-answer sessions with — members of the SEC, PCAOB, FASB, IASB, and professionals from various industries. This Heads Up extracts key insights from material presented during this year’s AICPA national conference on current SEC and PCAOB developments.

Summary

For three days, distinguished representatives from the SEC, PCAOB, accounting standard setters, and other professional groups presented their views on important developments affecting the accounting and auditing professions. This year’s conference also featured discussion panels on:

  • Current accounting practice issues.
  • User and investor views about financial reporting.
  • Identifying and managing sources of business growth.

Transparency and quality of financial reporting were significant conference themes. In his keynote address, SEC Commissioner Luis Aguilar highlighted the importance of the accounting profession’s role as gatekeeper to the financial markets. He stressed that the investor’s perspective must not be lost in the capital formation process, and he emphasised that registrants need to disclose “reliable and useful information, so that investors can better price risk and determine value”.

Indeed, several speakers emphasised the importance of disclosing reliable information and of such information being based upon effective internal control over financial reporting (ICFR) and sound audits. Mr Aguilar noted that effective ICFR is important not only for reliable financial reporting but also to facilitate effective auditing. Consequently, he questioned the efficacy of accommodations that would allow certain issuers, such as emerging growth companies under The Jumpstart Our Business Startups Act (the "JOBS Act"), to forego external audits of their ICFR because “evidence shows that independent attestation of internal controls promotes good financial reporting”.

PCAOB Chairman James Doty noted that auditors should approach the audit the way he believes they have approached the proper application of accounting principles. He therefore encouraged them to continue to work to enhance their procedures by focusing “on auditing as its own discipline, to be studied, nurtured and trained”.

The SEC staff reminded registrants that to improve transparency, their disclosures should fully “tell their story”, especially regarding significant judgements. The staff reiterated the importance of using objective and verifiable information to support their judgements and estimates. In addition, Meredith Cross, director of the SEC’s Division of Corporation Finance, cautioned registrants to be mindful of their responses to the SEC staff’s comment letters because they are filed on EDGAR and may therefore become part of the registrant’s “total mix of information” and disclosure records. Speakers also outlined initiatives to increase the transparency and relevance of disclosures, including the FASB’s disclosure framework project and the SEC staff’s plans to hold a roundtable meeting, potentially focusing on existing “disclosure gaps”, with members of the accounting profession, attorneys, and regulators.

As in the prior year, IFRSs were again the subject of significant focus. Against the backdrop of SEC Chairman Mary Schapiro’s recent resignation and the designation of SEC Commissioner Elisse Walter as her successor, a decision was not expected anytime soon about whether and, if so, how and when IFRSs will be incorporated into the US financial reporting system for public companies. However, incorporation of IFRSs remains a topic of interest, as revealed by numerous questions from conference participants about when a decision will be made.

Given that (1) a future decision about IFRSs is linked to progress in the FASB’s and IASB’s MoU convergence projects and (2) some level of divergence in these projects continues to be increasingly likely, FASB Chairman Leslie Seidman explained certain characteristics about standard setting in the United States. Ms Seidman noted that standards for US constituents must be clear, unambiguous, understood consistently, and accompanied by interpretive guidance. The increased use of IFRSs globally was described by IASB Chairman Hans Hoogervorst, who urged the United States to join other countries and adopt IFRSs. He indicated that IFRS constituents need the United States to clearly communicate its level of commitment to a single set of global standards. However, he also commented on the widespread adoption of IFRSs and noted that as a result of it, the risk of reversing the global convergence to IFRSs has decreased, regardless of the US decision about IFRS adoption. Paul Beswick, acting chief accountant in the SEC’s Office of the Chief Accountant, emphasised that while convergence is an important factor in the decision about whether to adopt IFRSs in the United States, the ability to consistently enforce the application of such standards within and across jurisdictions is equally important.

Several other topics were touched upon. The SEC discussed its enforcement actions against registrants and auditors as well as its rulemaking efforts in response to mandates under The Dodd-Frank Wall Street Reform and Consumer Protection Act, the JOBS Act, The Iran Threat Reduction and Syria Human Rights Act of 2012, and other legislation. The PCAOB noted that it continues to focus on its inspections of auditors of US registrants, to work with foreign jurisdictions to inspect foreign audit firms and foreign affiliates of US audit firms, and to operationalise its responsibilities to inspect broker-dealers. Other PCAOB activities center on (1) continuing to remind auditors of their need to enhance their professional skepticism, (2) finalising the auditor reporting model, and (3) implementing the PCAOB’s strategic plan.

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