By Amanda Maine, J.D.
SEC Deputy Chief Accountant Wesley Bricker discussed developments in financial reporting in remarks before the 35th Annual SEC and Financial Reporting Institute Conference. Bricker addressed FASB’s recently adopted revenue recognition standard as well as the importance of management’s role relating to internal controls over financial reporting.
OCA revenue recognition consultations. Bricker said that his staff continues to monitor the accounting profession’s activities regarding revenue recognition. He expressed concern that some questions have not yet been fully resolved by the AICPA industry groups or presented to FASB’s Revenue Transition Resource Group (TRG). He noted that two TRG meetings have been tentatively scheduled before the end of the year and encouraged relevant parties to give their views on the standard.
Bricker cited OCA’s own consultations with registrants regarding their policies for accounting for revenue recognition under the new standard. In particular, he noted that OCA consultations have addressed the application of the definition of a “contract,” the contract combination guidance which explicitly limits which contracts may be combined to those with the same customer or related parties of the same customer, and the application of OCA guidance for royalties based on when a report with the amount of revenues earned is received, not when the royalty sale or use occurred.
Presentation and disclosure. Bricker also addressed the presentation and disclosure policies under the new revenue recognition standard. He noted that the presentation of a company’s revenue recognition policies must be consistent with the principles of the new standard, which includes detailed information regarding the specific facts and circumstances within the arrangement; relevant accounting and reporting issues raised; conclusions reached and basis for those conclusions; analysis of the possible alternative answers considered and rejected; disclosure about the accounting; and audit committee views on management’s accounting and financial reporting conclusions.
Guidance on revenue recognition has changed, Bricker said, so companies should not assume their existing conclusions will remain unchanged under the amended guidance. He also stressed the need for companies to implement internal controls to evaluate the new standard. Companies should also inform investors about the new standard and its impact, Bricker said.
ICFR. Bricker said that he was pleased with the amount of attention internal controls over financial reporting (ICFR) assessments have been given at the conference. He highlighted a number of recent developments surrounding ICFR, stressing in particular the need for management to create the right “tone at the top” to foster effective internal controls.
Bricker also cited a recent SEC enforcement action that demonstrated the SEC’s efforts related to ICFR. Three important takeaways from the case were the responsibility of management to evaluate the severity of identified control deficiencies, the importance of maintaining adequate and competent accounting staff, and making sure management takes responsibility for its assessment of ICFR, according to Bricker.