Overview: 2019 AICPA Conference on Current SEC and PCAOB Developments
By Daniel Roach, Partner, Assurance Services
Each year in early December, the AICPA Conference on Current Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) Developments is held in Washington DC. This conference is where major accounting and auditing developments are discussed, and the event draws thousands of attendees. There are multiple panel discussions and keynote presentations over three days, on widely ranging topics such as financial reporting, new accounting pronouncements, and the types of issues that are being considered by the PCAOB and the SEC.
The 2019 conference included familiar topics such as revenue recognition and disclosure commentary, as well as new technology trends such as Blockchain and digital assets, and the effect of these trends on financial reporting and for the users of the financial statements. In addition, there were technical accounting and auditing updates from the SEC, PCAOB, FASB (Financial Accounting Standards Board), and IASB (International Accounting Standards Board).
Many panelists discussed risks also faced by companies, including Brexit, the transition away from LIBOR, and cybersecurity. A common topic that frequently came up from an accounting perspective was implementation of ASC 606 and revenue recognition. The SEC commented that it receives more questions about revenue recognition than any other accounting topic, and the agency encouraged companies to identify issues early on to give themselves and their auditors enough time to consider the issues in applying the rules.
Performance Obligations and Determination of Principal and Agent
Two particularly challenging areas related to implementation of the new revenue standards are the identification of performance obligations and determination of the principal and agent in a transaction.
An example discussed by a panel relating to the identification of performance obligations illustrated the rule’s complexity. The panel noted that when applying the rules a company may consider itself to be providing a solution to a customer; but while the company considers the solution a single obligation, there still must be careful consideration of whether there are other deliverables or services that need to be accounted for separately or can be combined. It requires careful consideration to determine the proper approach.
Another example related to agent and principal considerations and the fact that, despite any contractual arrangements that may be in place, there needs to be a consideration of which of the parties controlled the services before they were delivered to the customer.
There were also discussions about the implementation and disclosure of recent rule changes for reporting on accounting for leases, which is effective for most companies in 2019, and accounting for credit losses, which will be applicable for many companies starting in calendar year 2020.
The new credit losses standard requires companies to recognize credit losses using an expected loss model rather than an incurred loss model, and the panelists all encouraged an early effort to get ahead of any issues that may arise during adoption.
The keynote sessions of the SEC and the PCAOB covered 2019 accomplishments and 2020 goals for the these two agencies and brought up concerns for financial reporting that have been noted in previous years, such as the use of non-GAAP (Generally Accepted Accounting Principles) measures and international matters, as well as the visions of each agency.
SEC Chairman Jay Clayton emphasized that if non-GAAP measures are presented, the calculations should be consistent with adjustments that are not modified from quarter to quarter. However, he stated that if adjustments are made, they need to be clearly presented. Division Deputy Chief Accountant Patrick Gilmore noted that individually tailored presentations, such as the presentation of GAAP as a principal instead of an agent, for example, are likely to not be permitted. Other accounting topics included issues such as supplier finance programs as well as stock buyback programs.
Other panelists discussed Critical Audit Matters (CAMS) that are now required to be disclosed for large filers. The procedures used in considering a CAM must be described by the auditor and may or may not be related to critical accounting estimates. Also, the panelists noted that a CAM is not inherently positive or negative, and they encouraged users of financial statements not to consider the number of CAMs as a scorecard.
In summary, the SEC and PCAOB emphasized their efforts to stay ahead of the issues affecting reporting companies and how they expect financial reporting professionals to react to these issues in order to provide users of financial statements more comprehensive and useful information.
For questions about any of these topics, please reach out to your Marcum engagement team as a resource.