SEC Chief Accountant Sagar Teotia highlighted the importance of high-quality financial reporting during the COVID-19 pandemic. In a public statement, he also described ongoing efforts by the Office of the Chief Accountant ("OCA") to support audit quality and high standards.
Reporting and Disclosure
Due to the current environment, Mr. Teotia urged that companies disclose "significant judgments and estimates" in a clear and helpful manner for investors. He stated that companies should make sure that financial reporting "reflects and is consistent with [their] particular facts and circumstances." In addition, Mr. Teotia emphasized the necessity of thorough disclosure controls and procedures, and internal control over financial reporting ("ICFR"). Mr. Teotia reminded preparers to:
- disclose any material changes to an entity's ICFR in the related quarterly filing where such change "materially affects, or is reasonably likely to affect, an entity's ICFR"; and
- consider if "relevant conditions and events" of a reporting period, when taken together, raise substantial doubt regarding the ability of an entity to meet its obligations "as they become due within one year after the issuance of the financial statements," and include any such information in relevant generally accepted accounting principles-conforming disclosures in addition to strategies for mitigating such substantial doubt.
Further, Mr. Teotia underscored the importance of the role of a company's audit committee in SEC interactions and encouraged continued direct feedback from these committees.
Government Collaboration
Mr. Teotia highlighted the active collaboration between the OCA and other regulators to address financial reporting issues. In particular, he praised the SEC's collaboration with the Financial Accounting Standards Board on standard-setting projects, and the work of the Public Company Accounting Oversight Board in improving audit quality. He also (i) noted the SEC's engagement with the International Accounting Standards Board and the International Financial Reporting Standards Foundation Monitoring Board, and (ii) cited a recently issued IOSCO statement which encouraged high-quality, entity-specific disclosures regarding the impact of COVID-19 on issuer operations.
Originally published June 24, 2020.
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.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.