By Amanda Maine, J.D.
Speaking at the AICPA’s 2020 National Conference on Banks & Savings Institutions, SEC Chief Accountant Sagar Teotia and Deputy Chief Accountant John Vanosdall discussed recent trends and initiatives in the SEC’s Office of the Chief Accountant (OCA). While the COVID-19 pandemic continues to impact registrants, OCA has also fielded questions about new accounting standards on revenue recognition, leases, and credit losses. Teotia and Vanosdall encouraged the use of the OCA’s consultation process to obtain advice from OCA’s accounting group on accounting and financial reporting matters.
Focus on international issues and audit committees. Teotia emphasized the cooperative nature of international discussions on accounting matters, stating that regulators in other jurisdictions learn from each other as a result of having different experiences. He highlighted the work of IOSCO’s Monitoring Group, of which he is co-chair, on audit quality. He drew particular attention to the Monitoring Group’s recent recommendations to strengthen the international audit and ethics standard-setting system, which he believes will help improve audit quality.
Engagement with audit committees has also been a focus of both OCA and the PCAOB, Teotia said. He pointed out that at the end of 2019, the Commission had released a statement on the role of audit committees in financial reporting that provided observations and reminders on a number of potential areas of focus for audit committees. According to Teotia, the staff has heard "terrific feedback" on the statement, and the Commission will continue to spend time on the subject. Teotia also drew attention to the PCAOB’s proactive engagement with audit committee chairs. In 2019, the PCAOB spoke with nearly 400 audit committee chairs, and more recently, PCAOB staff held conversations with audit committee chairs on the impact of COVID-19 on audits.
Consultation process. Vanosdall described OCA’s consultation process and offered tips for OCA consultations. The staff views the consultation process as an important way to engage with stakeholders, he said. In addition to helping reduce uncertainty for a particular registrant, the process can also provide guidance to the marketplace. Vanosdall emphasized that OCA’s accounting group, which he leads, has a longstanding practice of accepting well-reasoned judgments made by accountants in financial reporting statements.
Vanosdall outlined specific information that the staff considers helpful during the consultation process. Accountants and attorneys representing registrants should provide an overview of the company’s business, including financial information such as assets, stakeholder equity, and revenue. They should also be up front about any timing considerations that should be taken into account, such as pending offerings or other transactions or recurring filing deadlines. It is important to give very detailed information on the specific facts and circumstances that gave rise to contacting OCA staff for consultation, he said.
The staff also needs to hear about the business purpose of the transaction at issue and the specific accounting issues raised by it, Vanosdall remarked. Companies should be prepared to discuss alternative views that were considered and why those views were eventually rejected. In addition, the staff wants to know if there have been prior SEC staff consultations in the area of the submission, as well as the views of the auditor and the audit committee, Vanosdall advised. He added that all relevant documents should be submitted before the consultation, such as organizational charts, press releases, and board minutes.
Recurring themes of 2020. Teotia asked Vanosdall about the recurring themes OCA has encountered so far this year. Vanosdall said that challenges related to the COVID-19 pandemic have been a major area of focus. According to Vanosdall, OCA has been actively working with FASB regarding its response to COVID. OCA has also been working with the Treasury Department and banking regulators regarding the accounting implications of federal coronavirus-related financial aid. The office has spent extensive time on outreach to stakeholders—including preparers, auditors, and industry groups—on accounting and financial reporting issues they are facing.
While OCA’s workload shifted to its COVID response in from mid-March to mid-May, it has now shifted in the other direction, according to Vanosdall. The staff continues to see a heavy stream of consultation activity, especially regarding new accounting standards on revenue, leases and credit losses (CECL). OCA has also engaged in consultations on income taxes, contingencies, and questions related to derivatives and hedging. In addition, OCA is involved with both the Commission and FASB to provide input on ongoing rulemaking projects, Vanosdall said.
Revenue continues to be the number one area of consultation, Vanosdall remarked. The staff has also received many questions about the new leasing standard, including the impact of COVID-19 on implementing the standard. While CECL is currently in the transition stage, OCA staff has answered a number of questions about it and will continue to do so, he added.