SEC stresses quality amidst economic uncertainty

SEC representatives set the tone of the Conference during Monday morning remarks by Commissioner Hester Peirce and Acting Chief Accountant Paul Munter, followed by a panel of professionals on Munter’s OCA staff. Peirce and Munter grounded their remarks in the SEC’s three primary missions: protect investors, promote capital formation and maintain fair, orderly and efficient markets. The overriding emphasis by Munter and the staff however in their remarks was protecting investors through increased transparency in financial reporting and providing decision-useful information. In fact, this theme permeated all of the Day 1 speeches and panels.

Transparent disclosures in a complex environment

Munter stressed not just the need for compliance when preparing financial statements, but also the importance of communicating with stakeholders through those statements. He described effective communication as depicting transactions and events – many of which involve complex accounting – in a way that is understandable to investors. He stated that accounting is a communication activity, the language of business.

Munter stressed that there is nothing precluding the disaggregation of disclosures now. Effective communication could include voluntarily providing the type of information investors have been asking for – such as providing certain components that are a part of a statement of cash flows presented under the direct method, and providing disaggregated financial information in areas like income tax reporting and income statement line items.

Munter also remarked on financial reporting in the current environment, which is dominated by uncertainties. His main concern from a preparer perspective is transparency, and he stressed the importance of disclosures about estimation uncertainties and the underlying basis for critical judgments in the financial statement notes.

Quality oversight at multiple levels

Munter spoke about the importance of audit committees considering management bias and understanding what both management and their auditor are doing to fulfill their respective responsibilities around accounting estimates.

OCA staff also spoke about the activities of the PCAOB and FASB. Doutt praised the PCAOB for its strategic plan, including its robust standard-setting agenda, and the PCAOB’s stakeholder engagement with this process. Further, Munter praised the FASB for refocusing its technical agenda to be more investor-focused through projects like improvements to income tax disclosures and disaggregation of income statement line items. FASB representatives are speaking on Day 2 of the Conference.