Insights

Headline Speeches From the 2016 AICPA SEC Conference

Dec. 13, 2016

The three-day 2016 American Institute of CPAs (AICPA) National Conference on Current SEC and PCAOB Developments concluded on Dec. 7. The speaker lineup was the traditional cast: the Chief Accountant from the U.S. Securities and Exchange Commission (SEC) and chairs from the Public Company Accounting Oversight Board (PCAOB) and Financial Accounting Standards Board (FASB) as well as additional representatives from the audit and accounting profession.

Several themes emerged from this year’s conference, many of which have been addressed at the conference in prior years, including:

  • Implementation challenges and reminders for the new major accounting standards on revenue recognition, leases, and credit losses
  • The need for continued improvement in internal control over financial reporting (ICFR) and disclosure, including non-GAAP (generally accepted accounting principles) measures
  • The importance of audit committees and increasing responsibilities of committee members

Following are notable messages from many of the headliners and links to their speeches. In addition, Crowe Horwath LLP representatives tweeted comments live from the conference.
 

We are onsite at the #AICPASEC conference this week. Follow along for insight and updates!

It’s that time of year! 2016 AICPA SEC & PCAOB Conf is underway! What will the hot topics be? #aicpasec @CroweUSNews
– Crowe tweets from the conference
 

From the SEC

Wesley R. Bricker

SEC Chief Accountant, Office of the Chief Accountant (OCA)

In the keynote speech, SEC Chief Accountant Wesley Bricker discussed the responsibilities of preparers, audit committees, auditors, and standard-setters in high-quality financial reporting.

Hot off the press! SEC’s Wes Bricker remarks: Advancing High Quality Information in the Capital Markets https://www.sec.gov/news/speech/keynote-address-2016-aicpa-conference-working-together.html … #AICPAsec
– Crowe tweet from the conference
 

For preparers, Bricker addressed the continued importance of ICFR and emphasized the importance of ICFR in implementing the new revenue recognition, leases, financial instruments, and credit losses standards.

He highlighted the need for disclosure in 2016 and 2017 filings about the significance of the impact of these new accounting standards when adopted in the future. Where implementation is lagging, he encouraged companies and their audit committees to understand why it is lagging and provide information to investors about the implementation status.

He also addressed non-GAAP reporting and the responsibilities of preparers and audit committee members for this information. He discussed the need for continued improvement in the appropriateness, prominence, and effectiveness of disclosure controls and procedures of the non-GAAP measures.

Bricker addressed audit committees and reminded them of their responsibilities. He also shared audit committee member questions that helped to foster discussion during his past role as an audit engagement partner:

  • “If you as the auditor were in management’s shoes and solely responsible for preparation of the company’s financial statements, would they have in any way been prepared differently?”
  • “If you as the auditor were in an investor’s shoes, would you believe that you have received the information essential to understanding the company’s financial position and performance?”
  • “Is the company following the same internal control over financial reporting and internal audit procedures that would be followed if you were in the CEO’s shoes?”
  • “Are there any recommendations that you as the auditor have made and management has not followed?”

He reminded auditors of their role and the requirement for independence in light of recently settled SEC enforcement actions with a large accounting firm and, separately, noted the boundaries that exist for auditor involvement with a client’s implementation of the new major accounting changes.

On the topic of International Financial Reporting Standards (IFRS), Bricker said that the FASB and U.S. GAAP will continue to be the basis for financial reporting by U.S. issuers, but he also stated that former Chief Accountant James Schnurr’s proposal to allow domestic issuers to provide IFRS-based information as a supplement to GAAP financial statements continues to be worth considering.

The SEC’s Deputy Chief Accountants in OCA

The SEC’s deputy chief accountants from OCA, Marc Panucci and Julie Erhardt, and assistant deputy chief accountant, Jenifer Minke-Girard, spoke on the first day of the conference.

Marc Panucci

Deputy Chief Accountant, OCA

In his remarks, Marc Panucci addressed ICFR, auditor independence, and PCAOB matters. About ICFR, he reminded the audience of a recent enforcement case in which the severity of a control deficiency was evaluated inadequately, and he shared a few takeaways:

  • “Management has the responsibility to carefully evaluate the severity of identified control deficiencies and to report, on a timely basis, all identified material weaknesses in ICFR. Any required disclosure should allow investors to understand the cause of the control deficiency and to assess the potential impact of the identified material weakness.”
  • “It is important to maintain competent and adequate accounting staff to accurately reflect the company’s transactions and to augment internal resources with qualified external resources, as necessary. Qualified accounting resources and appropriate processes and controls will be of vital importance in connection with the adoption of the new accounting standards that Wes Bricker discussed.”
  • “Management has to take responsibility for its assessment of ICFR. That responsibility cannot be outsourced to third party consultants. At the same time, third party consultants can play an important and critical role when assisting management in its evaluation of ICFR.”

About auditor independence, Panucci said, “Wes Bricker noted earlier that an auditor would impair its independence anytime it provides a specifically prohibited service, and reminded auditors and their audit clients to also consider whether services or relationships not specifically addressed in the independence rule may nonetheless be independence impairing.”  Panucci also shared four concepts that should be considered when evaluating “whether any relationship or service to be provided by an auditor:”

    "1. Creates a mutual or conflicting interest with its audit client;
    "2. Places the auditor in a position of auditing their own work;
    "3. Results in the auditor acting as management or an employee of the audit client; or
    "4. Places the auditor in a position of being an advocate for the audit client."

Julie A. Erhardt

Deputy Chief Accountant, OCA

Julie Erhardt discussed technology as a factor that affects financial statements and information used by investors today, and she posed questions for the accounting profession to consider, such as how the audited financial information that companies file with the SEC compares to the information that third parties provide to the investment community. Her remarks might provoke the accounting profession and all stakeholders in the financial community to consider the issue of digital formatting of financial statements in the current age of technology.

Jenifer Minke-Girard

Assistant Deputy Chief Accountant, OCA

Jenifer Minke-Girard spoke about the SEC’s role on the International Organization of Securities Commissions’ (IOSCO’s) board, particularly participation in the Committee on Issuer Accounting, Audit, and Disclosure (referred to as Committee 1). Committee 1 provides views on IASB exposure drafts, for example, and monitors the application of IFRS.

She also discussed the OCA’s consultations over the recent fiscal year (which ended Sept. 30) and noted the top three consultation topics: revenue recognition, business combinations, and financial assets. Before concluding her remarks, Minke-Girard previewed the OCA staff panel discussing specific consultation matters.

OCA Staff Panel

Following are the topics addressed by OCA accounting staff and fellows and links to their speeches:

Speaker Topics Addressed Link
Ruth Uejio
Professional Accounting Fellow
  • Recognition of payments to customers under new revenue standard
  • Presentation and disclosure considerations related to the principal versus agent analysis under new revenue standard
  • Allocating a change in pension benefit obligation to interest expense
  • Consistency, comparability, and importance of ICFR in implementing new leases standard
 
Speech
Brian Staniszewski
Professional Accounting Fellow
  • Instrument-specific credit risk for financial liabilities measured using fair value option under new recognition and measurement standard
  • Recognition of deferred taxes on undistributed foreign earnings and concerns that arise when disclosure outside audited financial statements is inconsistent with indefinite reinvestment conclusion
  • Financial instruments with debt and equity characteristics, including warrants with a put feature that requires liability classification
 
Speech
Jennifer L. Todling
Professional Accounting Fellow
  • Implementation and monitoring of new auditing standards
 
Speech
Sylvia E. Alicea
Professional Accounting Fellow
  • Definition of a contract and contract combination under new revenue standard
  • Transition disclosures for new major accounting standards on revenue, leases, and credit losses (including the SEC staff announcement at the September Emerging Issues Task Force meeting)
  • Reminder about transition disclosures required by Staff Accounting Bulletin (SAB) Topic 11.M (also referred to as SAB 74)
  • Update on SEC staff guidance on revenue recognition contained in SAB Topic 13
 
Speech
Jonathan Wiggins
Associate Chief Accountant
  • Consolidation and revenue guidance for joint ventures, strategic alliances, and collaborative arrangements
  • Certain public business entities that are equity method investees of SEC registrants
  • Measurement period adjustments in business combinations
 
Speech
Sean May
Professional Accounting Fellow
  • New credit losses standard
  • Consistency in accounting policies from period to period and determining whether a change in principle for new transactions or events requires a preferability evaluation
  • Grant dates for share-based payment awards that include terms that are subject to discretion, such as clawback provisions
 
Speech

Hot Topics From Division of Corporation Finance (Corp Fin)

 



Welcome to day 2 at AICPA SEC & PCAOB conference! First up is always popular Corp Fin developments session #AICPAsec
– Crowe tweet from the conference
 

Non-GAAP Measures

 

SEC’s Kronforst: Staff noted the widening gap b/n GAAP & non-GAAP; not trying to eradicate, most wide spread issue was prominence #AICPAsec

SEC’s Kronforst on non-GAAP: Whatever measure comes 1st is more prominent; translation: present the GAAP measure before non-GAAP #AICPAsec
– Crowe tweets from the conference
 

Transition Disclosures for Major Standards (SAB Topic 11.M/SAB 74)

 

... SEC’s Craig Olinger: Staff will focus on SAB 74 disclosures (impact of standards issued, not yet effective) #AICPAsec

Craig Olinger on major standards (rev rec, leases, #CECL): staff will not focused on ICFR changes with adoption of new standards. #AICPASEC
– Crowe tweets from the conference
 

Filing Observations

  

... Keith Higgins - Last year, only 35% filings resulted in a letter (and 65% did not) #AICPASEC

SEC’s Keith Higgins on comment letters from Corp Fin – Number of comments are down, staff reviews about 4-5k filings per year.. #AICPAsec

It’s back....segment reporting is discussed again at AICPA SEC conference. This has to be one of the longest running topics #AICPAsec
– Crowe tweets from the conference
 

From the FASB

Russell G. Golden

Chair, FASB

FASB Chair Russell Golden’s speech addressed significant improvements the board has made to GAAP including with the release of the new standards on revenue recognition, leases, and credit losses. He discussed how the FASB is monitoring transition efforts on the revenue recognition standard through the Revenue Recognition Transition Resource Group and on credit losses through the Credit Losses Transition Resource Group. Under his tenure, the FASB has focused on outreach efforts to educate stakeholders through the quarterly “FASB Outlook” newsletter and summaries of new and proposed standards included in “FASB in Focus” articles.

In terms of the future, the chair noted that improvements to GAAP will be coming with the final hedging and insurance standards in 2017. He also said that the board will continue to review feedback it has received on its technical agenda and move forward with the conceptual and disclosure framework projects that are in process.

Revenue Recognition


Jim Dolinar, chair of the AICPA’s Financial Reporting Executive Committee (FinREC), explained how the AICPA is helping with implementation of the revenue recognition standard. The AICPA’s 16 industry task forces are evaluating the impact with the goal of providing application observations for each industry. Draft implementation issues are posted to the Revenue Recognition page at the AICPA Financial Reporting Center.

Rev rec panel kicked off by Crowe partner/AICPA FinRec Chair Jim Dolinar: update on AICPA rev rec activities & sporting a fun tie! #AICPASEC

Update on rev rec activities by AICPA FinREC chair & Crowe partner Jim Dolinar. FinRec is working thru 100+ issues, finalized 15 #AICPASEC

Coming this month: AICPA Rev Rec Guide will include overview of standards, A&A chapters, aerospace & defense, asset management are most active of the 16 industry task forces. #AICPASEC

Fascinating rev rec panel, poll result is interesting - almost 50% haven't started or in initial stages #AICPAsec

What say registrants on transition for rev rec? 39% not sure, 20% full retro, 41% modified retro. #AICPAsec

As expected, few registrants (4%) are ready for rev rec disclosures; effective date not that far away #AICPAsec
– Crowe tweets from the conference
 

From the PCAOB

James R. Doty

Chair, PCAOB

In his remarks, PCAOB Chair James Doty discussed the PCAOB’s role in protecting investors and in managing the audit process through conducting inspections and issuing audit standards. Before concluding his speech, he addressed current standard-setting projects.

Martin F. Baumann

Chief Auditor, PCAOB

Chief Auditor Martin Baumann’s remarks were about the PCAOB standard-setting process and projects, including plans for the board to finalize its Auditor’s Reporting Model (ARM) project and issue, in the first quarter of 2017, proposals on auditing accounting estimates, including fair value measurements as well as the auditor’s use of the work of specialists.

Helen A. Munter

Director of the Division of Registration and Inspections, PCAOB

In her speech, Helen Munter addressed audit quality in light of her experience with audit firm inspections and plans for 2017.

From the Center for Audit Quality (CAQ)

Cindy Fornelli

Executive Director, CAQ

Cindy Fornelli reflects on progress since launch of @TheCAQ in 2007 & offers 7 reasons to be proud at #aicpasec conf
– Crowe tweet from the conference
 

In her remarks, CAQ Executive Director Cindy Fornelli discussed the reasons to be proud of the auditing profession. The reasons included strong investor confidence and the improvement in information provided to the marketplace by audit committees as reflected in the CAQ’s “Audit Committee Transparency Barometer.”

Related to auditors fostering conversations on non-GAAP measures, Fornelli referred to the newly released paper “Non-GAAP Financial Measures: Continuing the Conversation,” which includes a list of questions for stakeholders beyond the audit committee (for example, investors, securities lawyers, and standard-setters).

@TheCAQ news: Suggested questions for stakeholders to consider when using non-GAAP financial measures. http://ow.ly/6RMe306POUY  #AICPASEC
– Crowe tweet from the conference
 

Mark Your Calendars

The 2017 AICPA National Conference on SEC and PCAOB Developments will be held Dec. 4 through Dec. 6, 2017, Monday through Wednesday, at the Marriott Wardman Park in Washington, D.C.


Staci Shannon contributed to this publication.

Contact Us
garmong-sydney-150-2
Sydney K. Garmong
Office Managing Partner, Washington, D.C.