Securities Regulation Daily Wrap Up, ACCOUNTING AND AUDITING—SEC’s accounting staff provides update at AICPA conference, (Sept. 13, 2017)
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Wednesday, September 13, 2017

Securities Regulation Daily Wrap Up, ACCOUNTING AND AUDITING—SEC’s accounting staff provides update at AICPA conference, (Sept. 13, 2017)

By Jacquelyn Lumb

Rachel Mincin, an associate chief accountant in the SEC’s Office of the Chief Accountant, reported that consultations with OCA are up about a third from this time last year and have included questions about new GAAP implementation in areas such as revenue, leases, credit losses, recognition and measurement, and hedging. In remarks at the AICPA’s national conference on banking and savings institutions, she said most of the consultations relate to revenue adopters and the level of inquiries may foreshadow what OCA can expect with the implementation of the standard on credit losses.

Internal controls. OCA’s Senior Associate Chief Accountant Kevin Stout reported that internal control over financial reporting continues to be a significant area for his office. He reiterated Chief Accountant Wesley Bricker’s remarks that when adopting a new accounting standard, registrants should focus on all of the components of the COSO framework. Evaluate all areas for potential risk, including the risk of fraud, he urged, and take a fresh look at the communications component. It is important to monitor and test new controls and to ensure that personnel have adequate training. Stout noted that the new standard on credit losses may increase the opportunity for fraud and management bias.

Auditor’s reporting model. Stout also reviewed the PCAOB’s standard-setting activities and noted that the SEC must make a determination on the proposed auditor’s reporting model by October 26. The lens through which the Commission will consider the approval of the standard is its consistency with the Dodd-Frank Act provisions and the securities laws, he said. There will be an up or down vote—the commissioners cannot make tweaks to the proposal.

No-action relief for auditor independence loan provision. Stout also addressed the temporary no-action relief that the staff granted to Fidelity regarding auditor independence and the loan rule. The staff continues to work on this matter, including consideration of whether to amend the loan provisions. Meanwhile, the staff expects to extend the no-action relief, he advised (Fidelity Management & Research Co., June 20, 2016).

Staff comment letters. John Nolan, the senior assistant chief accountant in the Division of Corporation Finance, reviewed frequent areas of staff comments. If the staff reviews a registrant’s filing and has no comments, it does not notify the registrant that a review took place and no comments were forthcoming. He acknowledged that it frustrates some registrants, but that is the process. The staff sometimes will call if it has a question about a filing in order to be more efficient, he added.

This year, Nolan said most of the comments have been "one-off," with no particular theme. Many registrants are availing themselves of the opportunity to have the staff review their draft registrations. He said comments regarding allowance for loan losses is consistent with prior years, with the staff sometimes asking for expanded or revised disclosure. The staff rarely challenges whether the disclosure is appropriate under GAAP, he added.

Open PCAOB seats. In response to a question about the status of open positions at the PCAOB, the staff noted that two of the board’s members must be CPAs and one of the CPA positions is currently vacant. The PCAOB chair is serving past his term. Chair Jay Clayton issued a statement last month reporting that PCAOB Chair James Doty has agreed to remain in his position while a search for his replacement is underway and that filling the expired and vacant positions is a priority.

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