United States: Highlights Of The 2015 AICPA Conference On Current SEC And PCAOB Developments

A Focus On Quality Financial Reporting

SUMMARY

The 2015 AICPA Conference on Current SEC and PCAOB Developments, held in Washington, D.C., December 9–11, featured representatives from the SEC, PCAOB, FASB, IASB, and AICPA, who stressed the importance of the accounting profession's role in providing investors with quality financial information.

Themes shared throughout the conference included

  • The importance of high-quality financial reporting
  • A continued focus on making disclosures more effective for the benefit of investors
  • An emphasis on maintaining effective internal control over financial reporting
  • The growing attention on governance matters, including the role of the audit committee in managing company operating and financial reporting risks such as cybersecurity

This publication provides a synopsis of key matters discussed during the conference.

A. CONFERENCE OVERVIEW

The 2015 AICPA Conference on Current SEC and PCAOB Developments, held in Washington, D.C., December 9–11, featured presenters and panelists from regulators and standard-setting bodies, as well as industry professionals and legal practitioners. Presenters shared their views on current accounting, financial reporting, and auditing issues, which focused on these overarching themes:

  • Importance of high-quality financial reporting
  • Continued focus on making disclosures more effective
  • Emphasis on maintaining effective internal control over financial reporting (ICFR)
  • Growing attention on governance matters

Importance of high-quality financial reporting

Representatives from regulators and standard-setters, as well as industry professionals, expressed the continued importance of high-quality financial reporting. SEC Chair Mary Jo White, in her keynote address, emphasized the Commission's focus on investor protection and the shared responsibilities in maintaining high-quality, reliable financial reporting. Chair White touched on the key players, including preparers, auditors, audit committees, standard-setters, and regulators, and their individual roles and responsibilities in this effort. She stressed her view that preparers are the lynchpin in the area of quality, with auditors acting as gatekeeper.

The SEC and the PCAOB also work closely together to achieve their shared goal of quality. James Doty, PCAOB Chairman, in his keynote address stated that the PCAOB's focus on audit quality has led to improvements in remediation efforts at accounting firms and an overall improvement in audit quality.

Both regulators expressed that the focus on audit quality over the past few years has increased investor confidence in independent auditors and in turn has helped investors in viewing U.S. capital markets as more reliable.

Continued focus on making disclosures more effective

Echoing a major theme from the same conference in 2014, speakers continued to focus on ways to make disclosures more effective and informative. The SEC's disclosure effectiveness project is under way; for example, in September the SEC issued a request for comment on the financial disclosure requirements in Regulation S-X for certain entities other than a registrant. More recently, President Obama signed the Fixing America's Surface Transportation Act (FAST Act), which contains disclosure simplification directives for the Commission, and certain changes in the federal securities laws effective upon enactment, that aim to streamline capital formation.

Under its ongoing disclosure framework project, the FASB has issued several Accounting Standard Updates (ASUs) and exposure drafts. Russell Golden, FASB Chairman, stated that the project will ultimately increase disclosures in areas that are important to investors while removing irrelevant disclosures.

Industry representatives at the conference also provided insights on disclosure effectiveness initiatives at their individual companies, while all speakers encouraged companies to take a fresh look at their disclosures to identify areas that could be improved.

Emphasis on maintaining effective ICFR

In connection with other overall themes of the conference, effective ICFR is at the center of ensuring reliable financial information is available to investors. Even with the great strides the profession has seen in this area since the implementation of the Sarbanes–Oxley Act of 2002, presenters agreed that improvements can still be made. The PCAOB continues to find significant deficiencies in audits over ICFR, including management review controls. Further, James Schnurr, SEC Chief Accountant, in his remarks encouraged audit committee members to review the PCAOB's findings regarding ICFR, as they may be an indicator of deficiencies in management's controls and not limited to deficiencies in an auditor's control testing.

Growing attention on governance matters

Chair White and Chief Accountant James Schnurr both emphasized the importance of audit committees as gatekeepers for maintaining high-quality, reliable financial reporting and for protecting investors. Other speakers also stressed the importance of oversight by audit committees, in particular, their involvement in ICFR and auditor selection, among other responsibilities. Chair White noted the SEC's focus on audit committees' interactions with, and their important duties to report issues and findings to, shareholders. She further commented on the SEC's Concept Release issued in July 2015 focused on audit committee disclosure requirements and stressed how important the audit committee report is for investors. Chair White and Mr. Schnurr both discussed the expanding responsibilities imposed on audit committee members, including monitoring cybersecurity threats, and questioned whether the increased responsibilities will affect their core responsibility of overseeing financial reporting.

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