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Oct. 26 — SEC chief accountant James Schnurr emphasized the critical oversight role of audit committees to review and critically evaluate management's detailed revenue recognition implementation plans, as companies transition to new revenue recognition standards.
Schnurr speaking Oct. 23 at the Audit Committee Summit at the University of California, Irvine (UCI) said audit committees should provide effective oversight of the changes made by management to the companies' system of internal controls over financial reporting (ICFR).
“[A]s companies work to implement the FASB and IASB's newly-converged standard on revenue recognition, it is important to give early and ongoing consideration to implementing new controls or redesigning existing controls where necessary.”
Schnurr told attendees that the close- to-100 commenters on the “SEC's Concept Release on Possible Revisions to Audit Committee Disclosures” had mixed views about the need for additional mandatory disclosures related to audit committee oversight of the independent auditor.
The chief accountant said that many of the commenters who supported voluntary disclosures were members of audit committees that already provide disclosures going beyond existing SEC requirements.
Schnurr also noted that the commenters had written that the main reason that audit committees had increased their voluntary disclosures was because of the Commission's increased interest in the adequacy of current disclosures and that there would be a “shiftback to the previous practice for generally only disclosing the minimum information required,” if the Commission didn't follow up with some further action.
• around 40 percent of the comment letters were from audit committees and firm management;
• about 20 percent were from auditors and other accountants, and
• the other 40 percent were fairly evenly distributed from investors, academics, professional associations, law firms and individuals.
Those who supported more disclosure rules encouraged the SEC to “consider implementing principles-based requirements” to allow audit committees “sufficient flexibility to tailor disclosures to their particular facts and circumstances” to avoid boiler plate reporting, Schnurr said.
Some were worried that if the SEC were to adopt the potential disclosure examples given in the concept release, this would amount to a “rules-based disclosure regime that would lead to a checklist approach and boiler plate reporting” aimed at ensuring compliance, and minimizing risk, especially of litigation, Schnurr said.
• disclosing name of the engagement partner and other participants;
• changes to the auditor reporting model; and
• use of audit quality indicators.
Schnurr said the staff intended to “continue our close collaboration with the PCAOB on those projects, ” and that the SEC intended to continue to work closely with the PCAOB on internal control over financial reporting as “IFCR deficiencies continue to be one of the most frequent findings in PCAOB inspections of the largest public accounting firms.”
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David Schnurr's Oct. 23 speech to the UCI audit committee summit is available at http://www.sec.gov/news/speech/schnurr-speech-uci-audit-committee-summit.html
The SEC's Concept Release on Possible Revisions to Audit Committee Disclosures is at http://www.sec.gov/rules/concept/2015/33-9862.pdf, and the comment letters are at https://www.sec.gov/comments/s7-13-15/s71315.shtml
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