Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Nov. 15 — Auditors shouldn’t manage company efforts to apply new revenue recognition rules, a senior staff accountant at the Securities and Exchange Commission said Nov. 15.
Securities regulators cautioned auditors and companies that such actions may risk violating auditor-independence rules. Auditors and companies, therefore, should guard against outside accountants aiding companies in shifting to the new standard.
“Auditors can still be helpful as long as they’re mindful of independence rules” that bar auditors from making management decisions to the point that auditors end up signing off on their own work, said Kevin Stout, a senior associate chief accountant in the SEC’s Office of Chief Accountant.
Tens of thousands of companies globally must apply the 2014 standard—ASC 606—which was issued jointly by the Financial Accounting Standards Board and its international counterpart.
Many companies face big changes to their accounting practices—including beefed-up disclosures—to record and describe what is called the most important line in financial statements.
Companies in sectors such as aerospace and defense, telecom, technology, biopharmaceutical and media and entertainment could experience substantial financial impacts.
Public companies must start following the far-reaching revenue recognition standard in January 2018.
Stout and Wesley Bricker, the SEC’s interim chief accountant, nonetheless said some advice by external auditors on implementing the revenue standard could be appropriate. They spoke Nov. 15 at an annual conference of Financial Executives International in New York.
“Auditors will obviously have to do their job working through the evaluation of the appropriateness of the application of the new standard,” Stout said. The external audit firm also must “effectively identify audit risks to perform its audit,” he said.
The auditor must understand what management has done to implement the new accounting rules and to gauge what systems and processes have changed to do that, Stout said. Because of the changes, “auditors may be asked to provide important feedback to management on its implementation of the new standards,” he said.
“So, certainly, do support the auditor input there, because investors can obviously benefit when auditors and management engage in that dialogue,” Stout said.
Stout and Bricker stressed that investors’ confidence in financial reporting hinges on the auditor’s commitment to maintaining independence in both fact and appearance.
The auditor, in talking with companies about shifting to the new revenue rules, “needs to recognize that there are boundaries to their involvement,” Stout said.
He cited provisions in SEC rules—Section 201 of Regulation S-X—that lay out principles for auditor independence. Those tenets guard against auditors acting like management. They shouldn’t be involved in decision-making to the point they are auditing their own work, Stout said.
To contact the reporter on this story: Steve Burkholder in New York at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)