SEC, sec rules, audit, financial reporting
Tax & AccountingDecember 06, 2021

AICPA & CIMA Conference Highlights – December 6, 2021

By: CCH ARM Editorial

Representatives from Accounting Research Manager are attending the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments. This conference is being held Monday-Wednesday, December 6-8, 2021. The following are some highlights from conference speeches or presentations.


SEC Acting Chief Accountant Paul Munter, Deputy Chief Accountants John Vanosdall and Diana Stoltzfus

Paul Munter and the above noted Deputy Chief Accountants discussed the efforts of the SEC’s Office of the Chief Accountant (OCA) in the face of significant changes in capital markets and the profession. Munter indicated that our capital markets “continue to evolve and adapt in response to changes in the economic environment, investors’ needs for new types of information, and challenges related to the ongoing effects of the pandemic. Amidst these changes, the U.S. financial reporting system remains strong, largely due to the cumulative efforts of thousands of stakeholders who have exhibited resilience and adaptability, while remaining focused on the need for high quality financial reporting for the benefit of investors.”

High quality financial reporting cannot be achieved without high quality accounting standards. OCA actively leads the SEC’s efforts to oversee the standard-setting activities of the FASB, the PCAOB, and in promoting international financial reporting standards. Munter indicated that the “development of high quality accounting standards by the FASB, in its important role as the independent accounting standard-setter for U.S. GAAP, and by the IASB, whose IFRS standards may be used by FPIs, requires broad engagement with financial statement users, preparers, auditors, regulators, and others. Diverse stakeholder input, along with other research, enables the standard setters to better evaluate proposed standards and identify potential areas for improvement in their accounting and reporting requirements.”

OCA is committed to supporting the SEC’s goal of high-quality financial reporting in our capital markets. By furthering each element of high quality financial reporting (high quality accounting standard setting, high quality implementation and application of those standards, and high quality audits) OCA seeks to ensure that investors continue to have the information they need to make well-informed investment decisions. More specifically, OCA supports the SEC’s:

  • Rulemaking activities;
  • Oversight of accounting standard setting;
  • Efforts to promote effective implementation and application of those accounting standards; and
  • Oversight of the PCAOB.

Rulemaking Activities

The SEC has a full agenda of rulemaking activities on its near and long-term agenda. OCA plays an active role throughout the process of the SEC’s rulemaking process, advising the agency on the impact of proposed rules or rule amendments on accounting or auditing matters, and often playing a key role in developing rule proposals related to accounting or auditing matters for the SEC’s consideration. Munter highlighted a number of rulemaking agenda items, including on:

  • Climate risk disclosures; and
  • Trading prohibitions under the Holding Foreign Companies Accountable Act (“HFCAA”).

Climate Change Disclosures

SEC Chair Gensler has directed the SEC staff to develop a climate risk disclosure rule proposal, taking into account feedback received earlier this year. Given the global nature of our capital markets, OCA actively monitors international developments on climate change and related topics. In September 2021, the staff in the Division of Corporation Finance (Corp Fin) published Sample Letter to Companies Regarding Climate Change Disclosures. This illustrative letter contains sample comments that the division may issue to companies regarding their climate-related disclosure or the absence of such disclosure. As stated in the letter, depending on the particular facts and circumstances, these disclosures may be required as part of a company’s:

  • Description of business;
  • Legal proceedings;
  • Risk factors; and/or
  • Management’s discussion and analysis of financial condition and results of operations.


The HFCAA was signed into law in December 2020 and as required by the statute, the SEC adopted final rules on December 2, 2021, to specify disclosure and submission requirements for affected issuers. The HFCAA also requires a trading prohibition for an issuer’s securities if that issuer uses an audit firm that the PCAOB is unable to inspect or investigate completely for three consecutive years.

Under the HFCAA, the PCAOB is responsible for determining in which jurisdictions it is unable to inspect or investigate completely registered public accounting firms because of a position taken by an authority in that foreign jurisdiction. The PCAOB adopted a new rule in September 2021, that provides the framework for the PCAOB to use in making this determination. The new PCAOB rule was approved by the SEC on November 4, 2021 and is now effective.

In addition to rulemaking activities in this area, OCA indicated that it continues to work diligently with other offices and divisions of the SEC to bring to the attention of investors other risks related to investments in emerging markets, including China. Munter indicated that OCA, along with other offices in the SEC, recently issued an investor bulletin describing some of the specific risks of investing in U.S.-listed companies with China-based operations.

OCA Accounting Consultations

As part of their outreach, OCA continues to encourage companies to engage staff on significant accounting issues or questions. OCA cautioned that management must consider all facts and circumstances specific to their company when determining the correct accounting for a transaction and not simply rely on other consultation findings.

Munter indicated that OCA values “interactions with engaged stakeholders regarding issues they are facing, and we will continue to be informed by such feedback as we focus on investors’ need for high quality financial information, consistent with the SEC’s mission.” OCA recent accounting consultations have addressed a wide range of issues including questions related to financial statement presentation, segment reporting, revenue recognition, distinguishing liabilities from equity, consolidation, business combinations, financial assets, compensation, and leases. Munter and the Deputy Chief Accountants highlighted some key consultations and observations as follows.

SPACs and Entering Public Markets

OCA has engaged in a large number of consultations on accounting issues raised as companies prepare to enter the public markets, including through IPOs and mergers with special purpose acquisition companies (SPACs). Munter urged conference participants to review the following guidance issued by the OCA and Corp Fin earlier this year related to SPACs:

  • Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”); and
  • Financial Reporting and Auditing Considerations of Companies Merging with SPACs.

Since the issuance of this guidance, OCA has “continued to see a range of other accounting and reporting issues that entities have been working through related to SPAC transactions, including additional issues relating to warrant accounting, earnings per share, temporary versus permanent equity classification, compensation, business combinations, and derivatives.”

Related to companies that are entering, or planning to enter, the public markets, Munter reiterated the importance of ensuring that appropriate personnel and processes are in place to produce financial statements in accordance with U.S. GAAP applicable to public business entities. This would include consideration of the reversal of any previously-elected Private Company Council accounting alternatives available to private companies and, depending on the issuer’s status, earlier effective dates for most standards.

Revenue Recognition

OCA continues to see a significant number of accounting consultations in the area of revenue recognition. Many of these consultations are coming from companies entering the public markets and seeking SEC staff views on accounting for emerging or unique business models or transactions. Similar to observations shared in the past from OCA or the SEC staff, these revenue consultations often relate to the identification of the company’s performance obligations, including the principal versus agent analysis, identification of the company’s customer(s), and accounting for consideration payable to a customer.

Similar to the trend of revenue questions arising in emerging business models and companies accessing the public markets, OCA has received a number of consultations related to digital asset-related transactions or business models. These questions include, among others, when digital assets represent an asset or liability of the registrant, determining the cost basis for digital assets, and revenue recognition considerations. OCA welcomes constructive dialogue on whether accounting standards could be revised to better reflect the underlying economics of digital asset transactions or business models. However, OCA reminded stakeholders there is an existing accounting framework that is robust and provides a basis to account for and report these assets and related transactions. Application of the existing accounting guidance often requires judgment and depends on the issuer’s specific facts and circumstances.

Recent consultations and broader engagement with investors and other stakeholders resulted in the issuance by OCA and Corp Fin of Staff Accounting Bulletin (SAB) No. 120 on November 29, 2021. SAB 120 updates existing SAB series to conform to share-based payment accounting guidance issued by the FASB and provides interpretive guidance on the accounting for certain share-based compensation arrangements commonly referred to as “spring-loaded awards.”

Auditor Independence

OCA regularly receives consultations related to auditor independence under the SEC’s and the PCAOB’s independence rules. These questions are often raised by audit firms, but OCA also receives consultations from audit committees and management on independence matters that impact their filings. In cases where a question is raised by the auditor, OCA often also discusses the issue with the audit committee to understand its position on the matter.

OCA discussed its recently issued statement, The Importance of High-Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors. As noted in this statement, the SEC views the text of Rule 2-01(b) of Regulation S-X together with the four guiding principles laid out in the Introductory Text of Rule 2-01 as a framework to be applied when considering matters that are not directly addressed in other parts of Rule 2-01. The guiding principles refer to whether a relationship or a provision of a service:

  • Creates a mutual or conflicting interest between the accountant and the audit client;
  • Places the accountant in the position of auditing his or her own work;
  • Results in the accountant acting as management or an employee of the audit client; or
  • Places the accountant in a position of being an advocate for the audit client.

OCA indicated that in applying this principles-based standard, the SEC staff “has consistently provided the view that it would be a high hurdle to reach a conclusion that the accountant could be viewed as objective and impartial under the general standard when an auditor has provided services in any of the periods included in the filing that are contrary to one of these guiding principles.” OCA encourages consultation on all auditor independence matters and encourages stakeholders to contact OCA in advance of transactions or the provision of services that could raise independence questions.

High-Quality Financial Reporting

Munter and the Deputy Chief Accountants discussed the important role accounting standard setters, preparers, auditors, and audit committees play in ensuring high quality financial information for investors. To maintain quality over time, Munter indicated that accounting standards must evolve in response to changing circumstances and stakeholder feedback, particularly investor feedback, regarding the usefulness of the resulting financial information. It is critical that the FASB and IASB solicit and transparently incorporate investor feedback into standard-setting decisions. OCA acknowledged the extensive engagement that currently takes place between the FASB and investors. However, OCA believes that enhanced transparency of this engagement and the use of that input to its standard-setting process will allow stakeholders to better understand investor perspectives and how investor feedback is considered in the FASB’s standard-setting process and decisions.

Responsibility for high quality financial reporting rests in the first instance with management. In their preparation of financial information for the benefit of investors, OCA indicated that it cannot overstate the importance of preparers “making well-reasoned and supported judgments that are grounded in their particular facts, relevant rules, and accounting principles and that consider the usefulness and transparency of the resulting information provided to investors. Preparers should also ensure that significant judgments and estimates are disclosed in the financial statements in a clear and transparent manner that is understandable and useful to investors.”

Internal control over financial reporting (ICFR) must address ensuring proper disclosure is made of areas in the financial statements that involve significant management judgments and estimates. It is important for companies to continually assess their financial reporting risks and evaluate whether their ICFR environment is effective, including a particular focus on the design, implementation, and operating effectiveness of management review controls involving areas of significant judgment. In cases where an error is identified in the financial statements, management must determine whether the error is material, which is based on what is important to the user. If that analysis indicates that previously issued financial statements are materially misstated, those financial statements would need to be restated and reissued. OCA cautioned that under existing accounting guidance assessing whether an error is material to prior periods is not a mechanical exercise, nor is it based solely on a quantitative analysis. Rather, company management must properly evaluate the total mix of information and circumstances, taking into consideration both quantitative and qualitative factors to determine whether an error is material to investors and other users.

Just as preparers are responsible for assessing the effectiveness of ICFR, OCA indicated that it is important for audit firms to continually assess the effectiveness of their risk management and quality control systems, which serve as frameworks to anticipate and mitigate the risk of audit deficiencies. Auditors should consider the scope of services being provided by the audit firm, to avoid potentially independence-impairing situations for the accounting firm that issues the auditor’s report. This consideration includes evaluating the impact of business relationships and non-audit services on both existing and prospective audit relationships. OCA cautioned that entering into significant, multi-year non-audit service contracts or business relationship arrangements with non-audit clients can impact the auditor’s ability to remain independent in certain future circumstances.

OCA acknowledged that audit committees make significant contributions to the financial reporting system through their oversight of a company’s ICFR and related culture, the quality of financial reporting, and the quality of the independent, external audit process. OCA believes it is important that audit committees assess whether the scope of their responsibilities is appropriate, achievable, and aligned with the experience of its members. Audit committees must not lose sight of their core responsibility—oversight of financial reporting, including ICFR, engagement of the independent auditor, and oversight of the external audit process.

Near the end of its discussion of important topics being addressed by the office, OCA indicated that the transition away from LIBOR continues to be a topic of great interest throughout the SEC and its staff. Potential accounting or disclosure considerations and related internal control issues remain a focus of OCA and the SEC staff as this transition from LIBOR unfolds. OCA urged companies and their auditors to consider the impacts of LIBOR now given the impending transition timeframe.

Julie Bell Lindsay, CEO of the Center for Audit Quality (CAQ)

Julie Bell Lindsay discussed the state of public company auditing in a period of transformation led by changes in our capital markets and technology. The role of the auditor has expanded into new areas with new challenges, including environmental, social and corporate governance (ESG) reporting and assurance.

Lindsay highlighted the work of the CAQ. The CAQ is an independent organization within the AICPA that serves as the voice of U.S. public company auditors and matters related to the audits of public companies. To achieve this mission, the CAQ:

  • Promotes high-quality performance by U.S. public company auditors;
  • Convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and
  • Champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions.

The CAQ is focused on improving audit quality since the audits are the backbone of capital markets and investor protection. Independence and expertise is critical to high-quality audits. The CAQ has a continuous focus on maintaining high audit quality, including ongoing dialogue with the new PCAOB board. Lindsay indicated that the CAQ’s Audit Committee Council was established to identify emerging areas that audit committees and members of corporate board of directors are seeing on a day-to-day basis. This council allows the CAQ to stay ahead of emerging company issues and ultimately improves audit quality so as to protect stakeholders in public companies.

The CAQ observes that audit firms are making significant investments to enhance audit quality, including investments in:

  • Technology;
  • Quality control systems; and
  • Transparency.

Lindsay indicated that 61% of respondents to the Financial Executive International’s annual audit fee survey said that data analytics and other emerging technologies utilized by auditors improved the quality of their external audit. Having a robust independent regulator for public company audits is in the best interest of our capital markets and investors. The CAQ observed that 2021 PCAOB inspections demonstrated continued improvement among the largest firms year-over-year. Lindsay cautioned that opportunities remain for continued improvement in the timeliness of inspection reports and standard setting. The CAQs work in this area has brought a focus to more subjective areas of judgment evaluated during the audit process which are prone to misstatements or misrepresentations. Lindsay reminded conference participants that while auditors play an important role in detecting fraud, this responsibility is shared with key constituencies in the financial reporting supply chain, including preparers, company executives, and regulators.

Auditor roles in other areas continues to grow, including work related to ESG reporting. Investor and other stakeholders are demand is driving public companies to increasingly make net zero commitments and report more ESG metrics and information. CAQ-led research found that 95% of S&P 500 companies are currently reporting ESG metrics. Many companies referenced multiple ESG reporting frameworks to measure their metrics. The most common reporting frameworks used to report these ESG metrics includes CDP as the most common, followed by standards issued by the Sustainability Accounting Standards Board. Lindsay indicates that the CAQ supports the IFRS Foundations work on creating the International Sustainability Standards Board, which could issue standardized ESG disclosure and information standards. Most companies are disclosing ESG metrics outside the traditional financial statements. Only a small number had these ESG metrics audited by an independent audit firm. Auditors are well-positioned to audit ESG information in the future as part of their audit or related work. Auditors already consider material risks during preparation of audited financial statements and have in-house expertise on ESG reporting and assurance.

Lindsay urged conference participants to stay abreast of regulatory developments that focus on ESG reporting and other important areas. This includes the following:

  • Biden Administration: Climate change and other ESG matters are a key priority.
  • SEC: Actively working on proposal related to climate change, human capital/board diversity disclosures, cybersecurity, and SPACs (as discussed above).
  • PCAOB: the new board composition, areas for inspection focus, and potential standard-settling.

Lindsay urged continued efforts to bring in diverse skills into the audit profession. Talent and diversity remains a focus of the CAQ. This commitment to diversity is the foundation of the multi-disciplinary business model employed by the largest auditing firms and has helped achieve improvements in audit quality over the past few decades.

Tracey Golden, Immediate Past Chair of the American Institute of Certified Public Accountants

Tracey Golden welcomed conference attendees and discussed the future of work of CPAs. Golden indicated that the accounting and audit professions face some significant challenges and have many opportunities. Golden reminded conference participants that they are helping to deliver trust and confidence in a world that needs both. Golden discussed trends shaping the future of our profession and a focus of the AICPA, including technology, nonfinancial information, business development, career progression, and business growth.

Golden indicated that disruption caused by the global pandemic has also led to innovation in our profession. The pandemic has accelerated innovations in technology in the areas of Artificial Intelligence, cloud computing, and machine learning. It is in these times of trial that the profession can show its significant value to capital market stakeholders. The strength of our profession is our people. Many challenges in finding new people for the profession continues and was made worse by the pandemic. Key areas of focus in this battle for talent includes growing the pipeline of professionals, focusing on diversity, equity and inclusion, and ensuring the profession closes the “skills-gap” created by new technologies. To have the right skills for the future, the profession must embrace a commitment to life-long learning. Accountants and auditors cannot predict the future, but we can maintain our professions’ commitment to quality, integrity, and objectivity.

Golden discussed the continued rise of the importance of nonfinancial information, including an even greater focus on ESG disclosures and information. There is an increasing need for trust in nonfinancial information and related disclosures, including those around integrated or sustainable reporting. ESG is rapidly becoming integrated into the profession, including the areas of supply chain, growth expectations, mergers and acquisitions, assurance, and reporting. Golden discussed the International <IR> Framework issued by the IIRC which identifies the following six capitals that companies may find useful as a tool for considering disclosures:

  • Natural capital;
  • Social and relationship capital;
  • Human capital;
  • Financial capital;
  • Intellectual capital; and
  • Manufactured capital.

Corporate reporting has shifted towards reporting ESG metrics. Golden urged conference participants to “lean in” to this change and take full advantage of it to provide important value in this area. Audited ESG metrics can increase the value of this information to investors and protect their interests.

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