Blogs

As a precursor to the launch of the financial reporting season. SEC Chair Jay Clayton, Chief Accountant Saga Teotia and Corp Fin Director Bill Hinman issued this Public Statement today noting a handful of key principles underlying effective audit committee financial reporting oversight generally, along with a few specific "trending now" focal areas.

Generally, the SEC "encourages" audit committees to: 

• Focus on the “tone at the top” with the objective of creating and maintaining an environment that supports the integrity of the financial reporting process and the independence of the audit
• Consider periodically the sufficiency of the auditor’s and the company’s processes for monitoring auditor independence
• Engage proactively with management and the auditors in the implementation process of new accounting standards to understand management’s implementation plan, including management's processes to establish and monitor controls & procedures over adoption and transition
• Understand in detail identified ICFR issues and engage proactively in their resolution
• Incorporate the PCAOB AS 1301 auditor-audit committee communications dialogue in carrying out their responsibilities

Specific observations relate to the audit committee's responsibilities for non-GAAP measures, reference rate reform (LIBOR), and CAMs. Audit committees are advised to

• Understand whether—and how and why—management uses non-GAAP measures and performance metrics, and how those measures are used in addition to GAAP financial statements in the company’s financial reporting and in connection with internal decision making
• Understand management’s plan to identify and address the risks associated with reference rate reform, and specifically, the impact on accounting and financial reporting and any related issues associated with financial products and contracts that reference LIBOR
• Engage in a substantive dialogue with the auditor regarding the audit and expected CAMs to understand the nature of each CAM, the auditor’s basis for the determination of each CAM, and how each CAM is expected to be described in the auditor’s report