SEC Statement on Role of Audit Committees and Key Reminders
SEC Chairman Jay Clayton, Sagar Teotia, Chief Accountant and William Hinman, Director, Division of Corporation Finance issued a Statement on Role of Audit Committees in Financial Reporting and Key Reminders Regarding Oversight Responsibilities.
The statement does not include any new information.
In the statement:
The SEC notes ss the 2019 calendar year-end financial reporting season approaches, the SEC is providing observations and reminders on a number of potential areas of focus for audit committees. Issuers and independent auditors also should be mindful of these considerations with an eye toward ensuring that audit committees have the resources and support they need to fulfill their obligations.
- Tone at the Top – Because audit committees of public companies have financial reporting and independent auditor oversight authority and responsibility, they are instrumental in setting the tone for the company’s financial reporting and the relationship with the independent auditor.
- Auditor Independence – Compliance with auditor independence rules is a shared responsibility of the audit firm, the issuer and its audit committee.
- Generally Accepted Accounting Principles (GAAP) – While the process of implementing new GAAP standards is a collaborative effort among different stakeholders, the importance of the audit committee in promoting an environment for management’s successful implementation of new standards cannot be overstated.
- ICFR – Audit committees are responsible for overseeing ICFR, including in connection with their consideration of management’s assessment of ICFR effectiveness and, when applicable, the auditor’s attestation.
- Communications to the Audit Committee from the Independent Auditor – The SEC reminds audit committees of the year-end financial reporting process under PCAOB AS 1301, Communications with Audit Committees, which requires the auditor to communicate with the audit committee regarding certain matters related to the conduct of the audit and to obtain certain information from the audit committee relevant to the audit.
- Non-GAAP Measures –It is important that audit committees understand whether—and how and why—management uses non-GAAP measures and performance metrics, and how those measures are used in addition to GAAP financial statements in the company’s financial reporting and in connection with internal decision making.
- Reference Rate Reform (LIBOR) –The SEC encourages audit committees to understand management’s plan to identify and address the risks associated with reference rate reform, and specifically, the impact on accounting and financial reporting and any related issues associated with financial products and contracts that reference LIBOR.
- Critical Audit Matters – The SEC encourages audit committees to engage in a substantive dialogue with the auditor regarding the audit and expected CAMs to understand the nature of each CAM, the auditor’s basis for the determination of each CAM and how each CAM is expected to be described in the auditor’s report.
Contact Steve Quinlivan for more information.