In recent remarks, SEC Chief Accountant Wesley Bricker spoke about financial reporting evolution over the last four years and suggested several concepts to incorporate in looking toward the future of financial reporting. According to the official, the quality and reliability of financial reporting has increased over time due to the collective efforts of regulators, auditors, and other market participants, but there has been a long-term trend of less trust in corporations and audit firms. “Confidence in financial reporting is essential to a healthy economy,” Bricker stated.
Recent work. High-quality financial statements help investors to make well-informed decisions, Bricker noted, and regulators and industry participants have been working to advance financial reporting. Accountants should act with the highest level of integrity and accountability, and the Commission continues to work to protect investors from those that fail to meet their professional obligations, he said. FASB has issued new standards for revenue recognition, leases, and targeted improvements to hedging activities, among other things, and Bricker opined that these updates will continue to enhance financial reporting.
In addition, the official explained that non-GAAP reporting designed to supplement comparable GAAP numbers can add insight for investors concerning business performance from various perspectives, but that integrity and consistency in these figures is essential. Bricker also noted that auditor independence is fundamental to the credibility of audit reports and that independence standards must be reviewed over time to ensure that they continue to be effective in relation to evolution in financial industry.
“Preserving and enhancing confidence in the quality of audit services is essential to the public interest and all Americans,” he stated.
To aid in audit firm governance, many large audit firms have appointed independent directors or independent council members to strengthen monitoring and to foster audit quality, Bricker said. These individuals should be independent of mind and willing to challenge others in a constructive manner and contribute to firms’ annual transparency or audit quality reports, according to the official. With regard to audit committees, he said that an audit committee should incorporate the audit firm’s understanding of a company’s business and should take steps to familiarize itself with relevant research evidence. Bricker encouraged voluntary audit committee disclosures and urged committee members to continue to consider ways to improve communication with investors.
Moving forward. While noting that instances of ineffective disclosure controls have decreased for the second year in a row and that auditor inspection findings are on the decline, Bricker suggested that technological advancements could create new risks and complexities in connection with financial reporting. In addition, increasing investor reliance on financial intermediaries could affect how accounting and audit information serves investors, he explained; informed decision-making relies on high-quality, comparable financial information and other metrics, according to Bricker. Additional consideration must be given to the unique audit issues faced by small businesses and the corresponding costs, the official noted. On a broader scale, regulators and industry participants must continue international cooperative efforts to ensure that high-quality financial information is available regardless of the jurisdiction from which it comes, he explained.
“Even as we advance high-quality information in the capital markets, it is critically important to understand and maintain focus on the core principles that will move us forward and to continue to act by them,” Bricker concluded.
To aid in audit firm governance, many large audit firms have appointed independent directors or independent council members to strengthen monitoring and to foster audit quality, Bricker said. These individuals should be independent of mind and willing to challenge others in a constructive manner and contribute to firms’ annual transparency or audit quality reports, according to the official. With regard to audit committees, he said that an audit committee should incorporate the audit firm’s understanding of a company’s business and should take steps to familiarize itself with relevant research evidence. Bricker encouraged voluntary audit committee disclosures and urged committee members to continue to consider ways to improve communication with investors.
Moving forward. While noting that instances of ineffective disclosure controls have decreased for the second year in a row and that auditor inspection findings are on the decline, Bricker suggested that technological advancements could create new risks and complexities in connection with financial reporting. In addition, increasing investor reliance on financial intermediaries could affect how accounting and audit information serves investors, he explained; informed decision-making relies on high-quality, comparable financial information and other metrics, according to Bricker. Additional consideration must be given to the unique audit issues faced by small businesses and the corresponding costs, the official noted. On a broader scale, regulators and industry participants must continue international cooperative efforts to ensure that high-quality financial information is available regardless of the jurisdiction from which it comes, he explained.
“Even as we advance high-quality information in the capital markets, it is critically important to understand and maintain focus on the core principles that will move us forward and to continue to act by them,” Bricker concluded.