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19 December 2024

Accounting And Financial Reporting Insights From The 2024 AICPA & CIMA Conference

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From December 9 through 11, the 2024 AICPA & CIMA Conference on SEC and PCAOB Developments brought accounting leaders together in Washington, DC— with attendees both in person and online.
United States Accounting and Audit

From December 9 through 11, the 2024 AICPA & CIMA Conference on SEC and PCAOB Developments brought accounting leaders together in Washington, DC— with attendees both in person and online.

Over the course of three days, the conference showcased a proactive vision for the profession, focusing on strengthening the talent pipeline, updating pathways to licensure, and modernizing education. Speakers reinforced trust as accounting's cornerstone, spotlighted technology's transformative influence, and encouraged embracing emerging assurance services. With collaboration, continuous improvement, and innovation as guiding principles, attendees were called to shape a future defined by quality, relevance, and public confidence amid rapid regulatory and business change.

An Update on the Regulatory Environment

At the conference, senior regulators and policymakers outlined a complex and evolving US financial reporting environment, with a focus on capital formation, investor protection, and the balance between regulatory rigor and practical application.

SEC Commissioner Mark Uyeda discussed the agency's current priorities, including a renewed emphasis on materiality in disclosures and practical rulemaking that considers input from practitioners. He highlighted the need for thoughtful, consultative approaches in areas such as digital asset accounting guidance. Uyeda also addressed the SEC's oversight of the Public Company Accounting Oversight Board (PCAOB), underscoring the need to evaluate its structure, mandate, and day-to-day operations so that it functions efficiently, effectively, and accountably, ultimately bolstering confidence in US capital markets.

Congressman French Hill, Vice Chairman of the House Financial Services Committee, offered a legislative perspective. He stressed the importance of congressional authority over regulatory bodies, urged agencies to avoid rulemaking during administrative transitions, and signaled interest in evaluating the structure and function of the PCAOB. Hill also emphasized capital formation and expressed concerns about the cumulative burden of regulations on public companies.

PCAOB Chair Erica Y. Williams and the Board shared insights into improved audit quality trends, emphasizing that recent inspection results indicate positive momentum. They also highlighted progress in updating longstanding auditing standards, enhancing transparency through timelier inspection reports, and exploring the impact of firm culture on audit outcomes. The PCAOB reinforced its commitment to investor protection, timely enforcement, and responsible integration of new technologies in audit oversight.

Bill Hulse of the US Chamber of Commerce analyzed the post-2024 political landscape, noting that President Trump's return to office and a narrow GOP House majority, paired with a 53-seat GOP Senate, would likely limit sweeping legislation. Instead, he foresaw focus on staffing, regulatory rollbacks through the Congressional Review Act, and targeted tariffs on China and critical imports. Hulse highlighted the expiration of key Tax Cuts and Jobs Act provisions in 2025, emphasizing the Chamber's goals: preserving competitive corporate tax rates, maintaining stable international tax frameworks, and ensuring businesses remain resilient amid shifting trade and regulatory policies.

Adapting to the accounting landscape in 2025 and beyond

From regulatory changes to cross-functional collaboration and emerging technologies, the 2024 AICPA & CIMA Conference illuminated many key themes that will shape the year ahead. Join Riveron experts for an upcoming webinar that will explore related insights for accounting and finance professionals.

Key takeaways from comments by the SEC Office of the Chief Accountant

Conference presenters included SEC representatives who underscored the importance of public trust, quality standards driving better information, and stakeholder engagement.

Remarks from the Chief Accountant

On Day 1 of the Conference, Paul Munter, the Chief Accountant of the SEC, used his time to emphasize some familiar themes. Among those themes, Munter discussed the responsibility of the accounting profession to build and maintain public trust, the tone at the top of accounting firms, quality standards driving better information, and the critical nature of getting accounting right. Munter highlighted the history of the profession from the founding of the SEC and the FASB to the continued ongoing responsibility of the accounting profession to build and maintain public trust. Specifically, he described a basic bargain in which investors provide companies with capital, and, in exchange, those companies are obligated to provide adequate and accurate financial information.

Regarding the "tone at the top," Munter cited a recent study that found a new auditor was more likely to be responsive to the tone of their immediate supervising senior associate rather than the tone of their audit partner when those two parties differed in tone. The findings seemed to imply that, while professionals should continue to focus on building tone at the top, it must also be pushed down in a way that impacts the "mood in the middle" and the "buzz at the bottom". Without buy-in at all levels, the tone at the top will lack impact.

Looking at standards setting, Munter continued to emphasize that quality standards – both auditing standards and financial reporting standards – drive better information for investors. One standards-setting project he highlighted was the FASB project on the statement of cash flows and the critical nature of the information provided by the statement of cash flows. Conference comments echoed Munter's sentiments from previous comments, suggesting that the supplemental disclosure of items that would be disclosed under the direct method of presentation of the statement of cash flows (such as cash collected from customers or cash paid to employees) would be beneficial to investors.

OCA considerations

Members of the Office of the Chief Accountant (OCA) presented remarks from a panel that highlighted the role of the OCA and several auditing, accounting, and reporting topics. They observed the responsibilities of the OCA that arise in the application of federal securities laws, and they discussed specific accounting issues in practice. Highlights included the OCA's consultative role in setting both auditing and accounting standards, domestically and internationally. The OCA also emphasized a willingness and desire to engage with stakeholders regarding complex issues and to solicit feedback on accounting rulemaking. The OCA members discussed several prevalent issues that they are seeing in practice.

A topic explored in detail was related to the accounting for financial instruments and whether those instruments are indexed to an entity's own stock in accordance with ASC 815. In this situation, the issuer issues a warrant and the accounting for that warrant will depend on whether it is equity or liability classified. The OCA panel covered certain scenarios where warrants have different settlement scenarios with different inputs and where multiple inputs and scenarios can drive different accounting conclusions. The general consensus: standard setters should take a renewed look at the indexation guidance as it relates to financial instruments. In the meantime, companies should pay particular attention to every input, formula, and settlement provision in warrant agreements. While these features can seem commercially reasonable and benign in terms of impact, the combination of features (particularly those where a settlement upon a change in control are based on any kind of "greater of" provision) can significantly impact the ongoing accounting for warrants.

The OCA panel further emphasized the impact of errors on the assessment of an entity's controls, related party disclosures, and the interaction of specific industry guidance with accounting standards updates. On that last point, the OCA panel noted that, unless otherwise specifically scoped out, companies should assume that new accounting standard updates are applicable to their companies.

Corporate finance insights

Members of the Division of Corporate Finance discussed recent regulatory updates and observations on recent filings. With the implementation of Pay versus Performance, some companies are facing challenges with these disclosures. A large number of filings have omitted the required relationship disclosures, which show the correlation between executive compensation and performance metrics. Net income has been either omitted or altered and does not align with requirements to disclose GAAP net income. Company-selected measures also need improvement, as the descriptions often lack clarity or consistency. The use of clear terminology was urged for future filings.

Consistent with previous years, non-GAAP measures were a common area of concern. As a top SEC focus, comment letters are frequently issued regarding the lack of prominence of GAAP metrics, misleading adjustments, and tailored accounting. Companies were also urged to review their adjustments and ensure they are not excluding normal recurring expenses.

Another top area of SEC focus was segment disclosures and the adoption of ASU 2023-07. Companies must ensure alignment with how the chief operating decision maker (CODM) assesses performance, providing effective reconciliations and clarifying segment expense methodologies. Panelists provided additional reminders that segment metrics must comply with both GAAP and SEC non-GAAP rules while supporting investor understanding through detailed and clear disclosures.

Observations on implementing cybersecurity disclosures

Several discussions, including the CAO and Controller panel and Securities Law panel, examined the implementation of the SEC's cybersecurity disclosure rules. Companies need to develop a robust process for determining the materiality of a cybersecurity event. Those processes should include multilateral coordination across an organization, including relevant levels of a company's IT department, where employees may find themselves on the front lines of discovery of a cybersecurity incident. While it can be difficult to determine how to weigh quantitative versus qualitative factors, companies should think through those factors and how they weigh those factors as part of their process. Experts also discussed of several "what if" scenarios, such as:

  • What if a company determines a cybersecurity event is immaterial and then three days later discovers the breach was wider than originally thought?
  • What if a company wants to voluntarily disclose a cybersecurity breach that is deemed immaterial?

Addressing these types of scenarios could be an endless endeavor, but having (1) robust processes, (2) engaging in transparent consultations with regulators, and (3) ensuring forthright disclosures are critical to this emerging area of business risk disclosure.

Updates on securities law

The Securities Law panel, made up of seasoned securities attorneys, discussed various aspects of the Securities and Exchange Commission and what companies should expect between now and the Presidential inauguration on January 20. As has been recently announced, SEC Chair Gary Gensler will be departing as SEC Chair effective that same day. Between now and then, conference panelists also indicated that there will likely be departures of SEC Commissioners (such as Jaime Lizárraga) who belong to the Democratic party. Commissioner Crenshaw's term expired in 2024, and she is still continuing to serve as allowable for 18 months, pending renomination, for which confirmation is being delayed. This would scale back the commissioners from a party of five to a party of three. Therefore, it is unlikely there will be any rulemaking during the next two months in a show of respect for Paul Atkins, the new Trump-appointed SEC Chair.

Companies should consult with legal counsel as to whether to pursue outstanding administrative proceedings and other matters with the SEC during the next two months, as there could be pros and cons to pursuing settlements. In addition, the panel also speculated that there might be potential departures of more senior staff in the SEC's Division of Corporate Finance in the next two months.

The panel urged companies to take a refreshed "pen to paper" to risk factors in their Form 10Ks to ensure they have adequately addressed new business initiatives and market conditions affecting operations, inclusive of evolving technologies such as artificial intelligence. Companies should also review disclosure controls and procedures to ensure they remain robust and up-to-date.

FASB update and accounting trends

Over the course of the three days, attendees heard from both the FASB on recently issued and in-process agenda items and from technical leaders at Top 10 global accounting firms on common practice issues. These panels provided practical guidance and insights on an array of complex common topics.

Trending topics from the FASB

The Financial Accounting Standards Board (FASB) provided an update on the progress made on its 2024 technical agenda, identifying topics that will be priorities of CFOs, accounting professionals, and auditors. The FASB has recently undertaken numerous projects to improve financial reporting, including:

  • enhancements to segment reporting and income tax disclosures,
  • requirements for disaggregation of income statement expenses (DISE),
  • research on intangibles,
  • accounting for software costs,
  • and improvements to the statement of cash flows and hedge accounting.

The staff indicated an increasing focus on the cost-benefit analysis of proposed changes. Rich Jones, the chair of the FASB, pointedly asked if there is a better way to achieve what the FASB is trying to solve. The board is looking for stakeholder input on how to best tackle the FASB's objectives while continuing to make information more useful to investors.

A significant discussion centered on the reporting requirements under DISE, which serves to disaggregate expenses on the income statement in an effort to provide additional transparency to investors. This project, which has been in progress for 20 years, has identified "natural" categories of expense, including employee compensation, depreciation, intangible amortization, and other expenses.

Companies will be required to disclose the cost incurred to purchase inventory under DISE. This is an update from the originally proposed disclosure of inventory manufacturing expense, which was a newly defined term being introduced in the new guidance. Investor feedback through the comment process included feedback related to the cost to implement and concerns about the lack of systems and data available to comply with the new reporting requirement. The update to replace manufacturing expense with costs to purchase inventory in the disclosure illustrates the FASB's focus on ensuring that new standards reflect information already available for most entities.

This standard will require the presentation of disaggregated expenses in a table within the footnotes to the financial statements beginning on December 31, 2027 for public filers with calendar year-ends. The newly issued DISE disclosure requirements have been introduced in addition to the existing requirements for income statement disclosures, including items such as warranty expense requirements, which will remain in effect.

The panel highlighted the recent exposure draft on the definition of a derivative in ASC 815, noting that current practice has brought into scope a number of instruments that were broader than intended. The exposure draft included a scope exception for a feature that has an underlying based on the performance or operating activities of one of the parties of a contract. This scope exception is targeted to exclude features like ESG-linked features found in financial instruments and have an overall effect of reducing the number of derivatives requiring separate accounting.

Accounting for software costs was also a topic of discussion. The FASB ultimately decided on a targeted improvements approach, in which updates were only made to the guidance on internal-use software in ASC 350-40, modifying the capitalization thresholds from prescriptive stages to be more in line with the agile development process, removed the dedicated website development cost guidance, and provided a requirement that amounts expended for software costs are to be presented as a separate line item on the statement of cash flows. Application of the new guidance will likely require significant judgment in applying principles, rather than the more prescriptive changes, and panelists expect it to result in more costs being expensed.

Other current FASB projects include several areas, with various impacts such as:

  • interim reporting,
  • key performance indicators,
  • accounting for government grants,
  • environmental credit programs,
  • accounting for debt exchanges,
  • and more.

The FASB highlighted the desire for stakeholder feedback through their agenda consultation process and the extended timelines to receive comments on current exposure drafts. The FASB has extended the timeline from its typical 30 to 60 days to four to six months to accommodate a more robust feedback process during this busy time of year.

Insights from a panel on practice issues

Top technical leaders from major accounting firms held a discussion on some of the recent challenges they've seen in financial reporting. Most of these leaders serve as members of the Emerging Issues Task Force (EITF) created by the FASB to help research and identify accounting measurement, presentation, and disclosure issues that finance teams are facing in complying with current guidance. The issues are then recommended to the FASB as topics that should be added to its technical agenda.

The conversation led with a discussion on the accounting for warrants and how that is largely driven by the form of warrant contracts, emphasizing how much the terms governing the issued instrument matter, as nuanced provisions can have unintended consequences resulting in liability treatment. Certain provisions, including cash redemption and variable settlement, can result in warrants qualifying for liability classification, which requires being marked to fair value each reporting period, with changes recognized through the income statement, rather than being established as an equity instrument.

The panel emphasized that all terms need to be considered in the classification analysis. If the warrant is for the issuance of a redeemable share, whether contingent or not, it will almost always qualify for liability classification. However, other settlement provisions, including those contingent upon the occurrence of a fundamental change (such as a change in control), those dependent upon volatility or observable market indexes, or other specified events, all require the application of the indexation guidance to conclude on classification.

The indexation guidance is quite complex with the increasing number of new features being included in warrant agreements in recent years, and there is a heavy emphasis on making sure each of those features is considered appropriately to determine classification. The panel also indicated that they've seen scenarios in which the terms commercially seem to be an equity instrument in nature, but will fall into liability classification because of the strict nature of the indexation guidance. This is an area that's been heavily discussed by chief accountants and teams in the accounting profession and, similar to the comments from the OCA, was suggested as an area for review by the FASB.

Debt modifications were another area of discussion, noting the EITF recently came to a consensus on a tentative conclusion regarding when to apply the "10% cash flow test" to determine if a change in terms of debt qualifies as an extinguishment, particularly as it relates to situations where there are multiple creditors. The discussion at the EITF explored the information that may be most useful to investors, and that, in the instance that the old and the new debt were both issued at market terms, and the old debt was settled in line with its original terms, then the payoff of the old debt and issuance of the new debt will be viewed as two separate transactions, and extinguishment accounting will be applied for all creditors. Under the existing model, the cash flow analysis is performed at the creditor level, and it isn't uncommon to see a partial extinguishment, where there is a combination of existing lenders settling their debt, new lenders coming on, and some existing lenders being accounted for as a modification. The general consensus was that this guidance (which is mainly a straightforward approach to debt refinancing transactions) should reduce the level of effort and complexity in transactions involving multiple lenders.

Revenue recognition remains a complex area as well, with the technical leaders discussing revenue recognition issues related to coupons and payments in a form other than cash, such as stock. The intent of coupons and discounts must be analyzed and understood, as the cost will be a reduction in revenue unless the payment is distinct and at fair value instead of treatment as a marketing expense, which might be an unexpected outcome to the operations side of a business. The communication between accounting and marketing teams is critical in these scenarios to ensure the guidance is being considered in each of these scenarios. The panel also discussed contract modifications, and that the introduction of new products or services—including if there is a stand-alone selling price and if the performance obligations are distinct within the contract—are all key aspects to understand when making an accounting determination. In conjunction with the discussion of contract modifications, experts discussed how termination penalties should be accounted for when only a portion of the contract is terminated. Members of the panel noted that this would typically result in the termination penalty being attributed to the go-forward services with recognition of that termination penalty deferred.

The panel also discussed segment reporting, cash flows, and the VIE analysis in the consolidation process as those areas continue to see complexities in practice.

Technology, sustainability reporting, and other conference takeaways

This year's conference delved into a range of emerging topics relevant to accounting and finance professionals, including artificial intelligence, sustainability, and Pillar II global tax implications.

How technology and AI will continue to shape accounting and finance

Throughout the conference, multiple panelists explored the evolution of technology and how technology like artificial intelligence (AI), generative AI, and other automation tools are reshaping the accounting and finance landscape. These topics continue to remain top priorities for CFOs and their teams, and there was heavy emphasis on early adoption and governance of the use of these technologies.

Panelists discussed examples of how companies are using AI for predictive analytics and anomaly detection. Across various use cases, AI tools can analyze customer behavior patterns, forecast revenue trends, and streamline financial audits with greater accuracy.

The panelists recognized the concern that AI would take over certain workflows currently performed by accounting teams but described use cases where this has merely freed up the accounting or internal audit teams to perform more analytical work and uncover key business insights. The experts cautioned that companies delaying adoption will risk falling behind competitors who are already utilizing AI to gain efficiencies, reduce costs, and benchmark company performance. They challenged conference participants to learn about the technologies that are available, ways to deploy the technologies in their existing organizations, and how software can enhance decision-making and increase accuracy.

Tech-powered case studies

Technology can enable finance and accounting teams to do more: explore related success stories.

Technology can be a key factor in increasing the talent pipeline for accountants. Technology-related innovation and data analytics are key pieces in the future of the accounting and financial reporting profession. The opportunity to utilize coding and data science to provide strategic insights could be a draw to incoming business professionals.

Considerations for ESG reporting and sustainability

From European sustainability directives to California's climate laws, the regulatory landscape for ESG reporting is rapidly evolving. As US companies grapple with overlapping requirements, many are choosing to consolidate disclosures at the global level, clarifying data and reducing complexity. They face double materiality assessments, must strengthen processes and controls, and prepare for third-party assurance. Even as SEC climate rules remain unlikely to go into effect, existing disclosure obligations persist, demanding careful evaluation of climate-related risks and materiality. Practitioners should invest now in robust governance, reliable data collection, and clear accountability structures to ensure regulatory readiness and maintain investor confidence in a changing environment.

Navigating the Pillar II global minimum tax

A panel discussion provided a refresher on Pillar II that outlined the tax policy's primary objective of ensuring large multinational enterprises pay a minimum effective tax rate of 15% in every jurisdiction in which they operate. Experts discussed where companies should focus their attention as the global tax law continues to evolve.

While some are receiving tax relief through safe harbors, certain safe harbors are temporary, and companies should build robust processes to obtain accurate and reliable data for country-by-country reporting once the safe harbors expire.

Given the iterative nature of Pillar II, companies should focus on strong collaboration between tax, finance, accounting, and IT departments, enabling functional processes that will help professionals monitor and account for jurisdictions as they adopt or modify Pillar II tax legislation. From a financial reporting perspective, regulators reminded attendees that adequate disclosure of expected quantitative impacts from the application of Pillar II rules should be considered in a company's MD&A and risk factors.

As companies identify which tax jurisdictions have the latest Pillar II implications, they should proactively engage with their auditors and tax advisors to reduce surprises and errors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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