TheCorporateCounsel.net

Paul Munter’s statement is also worth checking out because it gives tips for accounting standard setters, companies, auditors and audit committees. These are areas that the Office of the Chief Accountant (and the Commission) are focused on, so you should be too. Here are a few nuggets:

1. Estimates & Assumptions – Munter says that he cannot overstate the importance of preparers making well-reasoned and supported judgments that are grounded in their particular facts, relevant rules, and accounting principles and that consider the usefulness and transparency of the resulting information provided to investors. Companies should also ensure that significant judgments and estimates are disclosed in the financial statements in a clear and transparent manner that is understandable and useful to investors.

2. Internal Controls – Companies must continually assess and evaluate whether their ICFR environment is effective. In light of significant changes to many companies’ operations, for example, changes to their financial reporting processes in a remote work environment, the OCA reminds preparers that if any change materially affects, or is reasonably likely to materially affect, an entity’s ICFR, such change must be disclosed in quarterly filings in the fiscal quarter in which it occurred (or fiscal year in the case of a foreign private issuer).

3. Audit Committee Responsibilities – Audit committees are getting more involved with ESG, cybersecurity, tax risks, and more. It is important that audit committees assess whether the scope of their responsibilities is appropriate, achievable, and aligned with the experience of its members, and importantly, not lose sight of their core responsibility — oversight of financial reporting, including ICFR, engagement of the independent auditor, and oversight of the external audit process. Munter says that he cannot overstate the importance of independent and diverse thinking brought by independent directors in fulfilling this responsibility.

4. Audit Quality – Audit committees must consider the sufficiency of the auditor’s and the issuer’s monitoring processes, including those that address corporate changes or other events that could affect auditor independence. In addition to evaluating independence of the auditor, it is foundational to high quality audits that audit committees give careful consideration to audit quality, and not merely focus on price, when appointing and retaining auditors.

– Liz Dunshee