December 7, 2021

SEC’s Chief Accountant Recaps Activities & Priorities: What a Year!

Yesterday, the SEC’s Acting Chief Accountant, Paul Munter, issued this statement to recap the 2021 activities of the Office of the Chief Accountant – and preview what could be coming. It’s not unusual for the head of the OCA to make a statement like this near year-end (here’s last year’s). This year’s version caught my eye because it’s a reminder of the many complexities that have cropped up during 2021 – like a BuzzFeed “Best of ’21” list, but for accounting. For example:

1. SPAC accounting – speaking of BuzzFeed and de-SPACs…the OCA has received a large number of consultations on accounting issues for IPO companies this year, including those going public via a SPAC. The statement reiterates the importance of ensuring that appropriate personnel and processes are in place to produce financial statements in accordance with U.S. GAAP applicable to public business entities, which would include the reversal of any previously-elected Private Company Council accounting alternatives available to private companies and, depending on the issuer’s status, earlier effective dates for most standards.

2. Revenue Recognition – Similar to observations the OCA has shared in the past, revenue consultations are numerous and often relate to the identification of the company’s performance obligations, including the principal versus agent analysis, identification of the company’s customer(s), and accounting for consideration payable to a customer.

3. Crypto – While the OCA welcomes constructive dialogue on whether accounting standards could be revised to better reflect the underlying economics of digital asset transactions or business models, this statement reminds stakeholders that there is an existing accounting framework that is robust and provides a basis to account for and report these assets and related transactions. Application of the existing accounting guidance often requires judgment and depends on the issuer’s specific facts and circumstances. The statement also emphasizes the FASB’s and IASB’s work to consider feedback from their respective agenda consultation processes will be important in this area.

4. Auditor Independence – This statement reiterates Munter’s October comments about the importance of auditor independence. It notes that the number of auditor independence consultations has increased. In applying the principles-based standard of Rule 2-01 of Regulation S-X, OCA staff has consistently provided the view that it would be a high hurdle to reach a conclusion that the accountant could be viewed as objective and impartial under the general standard when an auditor has provided services in any of the periods included in the filing that are contrary to one of the Rule’s four guiding principles.

5. PCAOB Oversight – The statement touches on the Commission’s authority to oversee the PCAOB, including by appointing board members, and notes that the OCA advises the Commission on its responsibilities. Last month, the SEC announced appointments of new PCAOB members (some Republican members of the House Financial Services Committee and the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets recently requested an inquiry into the removal of Bill Duhnke earlier this year, but the statement doesn’t dive into that drama).

6. OCA Role in Rulemaking – The OCA has been involved with the SEC’s rulemaking effort on climate risk disclosure. That includes involvement with international financial reporting standards, which have been a big topic of discussion when it comes to standardization of ESG disclosures. OCA has also been involved with rulemaking about risks of investments in companies with China-based operations, and the impact of different types of restatements on executive compensation clawbacks.

Liz Dunshee