AICPA National Conference on Current SEC and PCAOB Developments
By Michael Gross, Manager, Assurance Services
The AICPA annual conference was held from December 4-6, 2017, in Washington, D.C. The conference focused on recent U.S. Securities and Exchange Commission (“SEC”) and Public Company Accounting Oversight Board (“PCAOB”) developments in accounting, auditing, and financial reporting topics. Representatives from the SEC, PCAOB, Financial Accounting Standards Board (“FASB”), and International Accounting Standards Board (“IASB”) participated. The following is a summary of some of the conference highlights that are of particular interest to registrants and audit committee members.
Financial Reporting Supply Chain
One of the main themes of this year’s conference was communication in every aspect of the financial reporting supply chain, including: (1) among management, the audit committee, and the auditors; (2) between management and the regulators and standard-setters; (3) between regulators and standard-setters and their international counterparts.
Auditor’s Reporting Model
PCAOB Chief Auditor Martin Baumann highlighted the new PCAOB auditing standards aimed at improving transparency by requiring auditors to identify audit participants and include more information in the auditor’s report. Mr. Baumann provided an overview of the new report requirements, noting that all changes, except for the requirement to describe Critical Audit Matters (“CAMs”), are required for audits of fiscal years ending on or after December 15, 2017. Mr. Baumann is hopeful that auditors, audit committees, and management will use the remaining time to discuss matters that might be reported as CAMs before the requirements become effective.
Marc Panucci, Deputy Chief Accountant for Professional Practice in Office of the Chief Accountant, reminded auditors, audit committees, and preparers of their shared responsibility for independence and the importance of having the right policies in place to maintain independence. He encouraged companies and their auditors to define a framework to guide the procedures performed by the audit firm so it’s clear what the auditor can and cannot do, especially when it comes to services related to the new accounting standards. Management, the audit committee, and the auditor should all have a good understanding of this framework to mitigate the risk that the auditor might inadvertently expand the scope of its services and perform an impermissible service.
Many speakers at the conference discussed the need for collaboration and coordination between U.S. and international standard-setters. Sue Lloyd, Vice Chair of the IASB, discussed how the IASB and the FASB worked together very closely on the major new accounting standards on revenue and leases, and how, while the boards “have not always ended up with identical standards, (they) have moved in the same direction.” She said that the new revenue standards in U.S. GAAP and IFRS are “virtually identical,” meaning that the main performance metric in financial statements should be “comparable around the world.” She added that the IASB would always consider the ideas of other standard-setters and support effective communication.
PCAOB Inspection Results and Findings – Looking Forward
Helen Munter, Director – Registration & Inspection, PCAOB, described the PCAOB’s expected areas of focus for the 2018 inspection cycle, which will include: (1) new accounting standards and audit firms’ response to implementation and training; (2) compliance with new auditing standards, such as the new auditor’s reporting model; (3) new technology, including cybersecurity and the use of software auditing tools; (4) specific risks, such as mergers and acquisitions and natural disasters; and (5) recurring areas of inspection deficiencies.
Julie Erhardt, Deputy Chief Accountant, commented on current technology innovations and noted that new technologies can raise accounting and auditing questions. Erhardt reminded registrants to devote the appropriate time to get ahead of innovation, understand how it works, and understand how to apply current accounting models to it.
A panel on “Auditing in the Future” focused on continuous technology changes and how technology can: (1) support the audit process, (2) work in tandem with the auditor, and (3) increase efficiency and speed of operations. The technologies covered by the panel included: (1) blockchain technology, (2) Robotic Process Automation (RPA), (3) data analytics, and (4) Artificial Intelligence (AI).
A panel on cybersecurity described the AICPA Cybersecurity Risk Management Framework and commented that the framework establishes “a common language to discuss cybersecurity in a consistent and transparent way.” One panelist from the FBI commented on the importance of companies having savvy cybersecurity leaders with knowledge of: (1) cybersecurity threats, (2) those committing the acts, and (3) how to protect their companies’ information.
Transparency is important among management, the audit committee, auditors, and standard-setters in registrant financial reporting. Additionally, companies and registrants need to be aware of technology advances and apply those advances to their businesses, while also being cognizant of the added risk present with cybersecurity.