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Financial Reporting and the Law

In a recent speech, SEC Chair Mary Jo White highlighted the Commission’s accounting priorities, indicating, among other things, that the Commission plans to issue a statement regarding International Financial Reporting Standards (IFRS) in the relatively near future and that she has asked the SEC Staff to examine the existing audit committee report to make it more useful to investors. Chair White discussed whether IFRS should apply to domestic issuers, saying that “considering whether to further incorporate IFRS into the U.S. financial reporting system [continues to be] a priority for me.” With respect to the audit committee report, she stated that the “audit committee reporting requirements have not changed significantly in a number of years, and I think it is time to take a look at whether improvements can be made.”

Chair White also made several other statements in her speech regarding SEC accounting priorities, including the following noteworthy items:

  • “The staff will actively monitor implementation of the [revenue recognition] standard to help limit inconsistencies in application and will also seek out the views of investors, issuers, auditors, the PCAOB, and others.”
  • “The [Financial Reporting and Audit] Task Force, with the assistance of our Office of the Chief Accountant, is also looking ahead and around corners to identify additional areas where financial reporting fraud may be likely to occur, and focusing on internal controls related to the areas we identify as being susceptible to financial reporting fraud.”
  • “[T]he Division of Enforcement has been investigating the quality of audits to determine whether the auditors missed or ignored red flags; whether they have maintained proper documentation of the work performed; and whether they have complied with applicable professional standards.”
  • The Regulation A+ and Crowdfunding proposed rulemakings raise important questions about the accounting treatment for a start-up or a small cap company, including “what should the threshold be for requiring a start-up or small cap company to have audited financial statements? Should the accountant for a start-up or a small cap company be registered with the PCAOB? Should we mandate accrual-based accounting or should companies relying on these exemptions be allowed to use cash-based accounting?”