GAAP Dynamics recently attended the AICPA Conference on Current SEC and PCAOB Developments from December 10-12, 2018. It’s almost like New Year’s Eve for accountants – everybody has gathered for the annual celebration and is ready to reminisce about the past year and plan for next year, but instead of staying out late in Times Square, we were getting up early in Washington D.C.!
The overall theme of the conference was collaboration and responsiveness; there was significant discussion surrounding management, audit committees, and auditors working together, and their responsibility to provide decision-useful information and to be transparent. Disclosures surrounding new guidance, non-GAAP measurements, cybersecurity and Brexit were highlighted, as well as the new requirements of the auditor’s reporting model relating to critical audit matters (CAMs). Because the conference was roughly 12 days away from Christmas, we have summarized some of the highlights in accordance with one of our favorite Christmas songs, The Twelve Days of Christmas (just sing along in your head!).
On the first day of Christmas, the AICPA gave to me.…1 Bricker blueprint! SEC Chairman, Jay Clayton, and SEC Chief Accountant, Wes Bricker, kicked off an early morning session on Day 1 that focused on quality. In order to have a high-quality audit, responsibilities need to be shared and communication is key. And then the Bricker blueprint was unveiled on stage! The Bricker blueprint is an overview of the financial reporting structure and is meant to foster general purpose reporting (focus on investors). In order to enhance overall involvement between the auditors, audit committee, and management, an understanding of the structure is essential.
On the second day of Christmas, the AICPA gave to me.…2 years away from public company adoption of CECL! Day 3 of the conference focused on financial instruments hot topics, including the new credit loss model (CECL) guidance in ASC 326. Recognition of impairment will now be based on expected losses over the lifetime of the instrument, but don’t wait to assess the impact of the new guidance! The scope of CECL and key concepts (recognition, measurement, practical expedients, etc.) were also discussed. There is also a Transition Resource Group (TRG) available for assistance.
On the third day of Christmas, the AICPA gave to me…3 areas of consideration for future PCAOB standards! The PCAOB noted that they are considering whether to adopt new auditing standards for auditing accounting estimates, including fair value measurements, and using the work of specialists. The proposal is to replace the existing standards on auditing estimates and fair value measurements into one standard, AS 2501, Auditing Accounting Estimates, Including Fair Value Measurements. Additionally, because the use of estimates and fair value measurements are increasing, additional focus and guidance is going to be needed surrounding the use of specialists.
On the fourth day of Christmas, the AICPA gave to me…4 SEC Division of Finance themes! Day 2 kicked off with a panel of members from the SEC’s Division of Corporate Finance and they discussed four overall themes:
- Rulemaking – the DUSTR rule was highlighted (new forms, changing thresholds) as well as S-X 310 and 305 rules and the timing of press releases in conjunction with Form 10-Qs.
- Disclosures – LIBOR, Brexit, and cybersecurity are areas where companies need to be aware of their disclosures surrounding potential breaches or potential impacts. Companies also need to clearly disclose how and why they use non-GAAP measures and why it’s important to investors.
- Technological advances – keeping up with technology and using data capabilities to your advantage was another highlight from the panel.
- Reporting matters – focused on the process of conducting reviews of filings and emphasized that documentation and being able to explain the reasoning behind the use of significant judgements is extremely important.
On the fifth day of Christmas, the AICPA gave to me…5 new PCAOB board members! For the first time at the AICPA conference, all PCAOB board member were present for a panel discussion. And it just so happens that the Board is comprised of all new members! They noted that 2018 was “easy” and are taking a “clean sheet” approach moving forward – nothing is off the table as a focus area! They want to re-evaluate the standard setting process, think about potential Critical Audit Matters (CAM) guidance, and on quality control while considering technology throughout the process.
On the sixth day of Christmas, the AICPA gave to me…6 specialized SEC enforcement units! I’m including this blurb on the Division of Enforcement because I’ve always said – if the SEC were to ever hire me, I would want to be in the enforcement division! During the last fiscal year, the SEC awarded 13 individuals that participated in the SEC’s whistle blower program approximately $170 million! The enforcement division is executed by six specialized units and have been focused on the following:
- Retail investor protection
- Registrant conduct
- Cyber-related misconduct (ICO’s, blockchain)
- Financial fraud
- Insider trading
On the seventh day of Christmas, the AICPA gave to me…7 Office of the Chief Accountant (OCA) speakers! There was a SEC panel on Day 1 that discussed current projects of the Office of the Chief Accountant (OCA) and we heard from 7 accunting fellows in the OCA. The panel discussed the importance of the OCA and provided various thoughts and updates on the following:
- Transition and consultations related to revenue recognition, leases, and CECL
- The identification of performance obligations and determining principal vs. agent under ASC 606 guidance (the two most consulted areas on revenue recognition)
- Transitioning away from LIBOR
- Evaluating operating effectiveness of ICFR and related disclosures
- Control deficiencies, material weaknesses, and compensating controls
On the eight day of Christmas, the AICPA gave to me…8(42), Leases! Day 2 included a panel discussion on the adoption of ASC 842, Leases, and the panel reiterated that there will be no delays in the effective adoption date, even though there have been significant implementation challenges as it relates to IT solutions. The panel also discussed various updates to the guidance that have been issued (practical expedients) and noted possible challenges to expect after adoption of ASC 842:
- Stabilizing the “new normal”
- Staying on top of changes that could impact current leases
- Managing the accounting for new leases entered into
- Impairment testing
On the ninth day of Christmas, the AICPA gave to me…(IFRS) 9 discussion! Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB) and always a popular panelist, discussed if we are ready for the next financial crisis. Hans pointed out that both the IASB and FASB reacted to the last financial crisis by replacing the incurred loss model for loan losses with an expected loss model. Hans pointed out that critics of IASB’s IFRS 9 model, believe the guidance will cause an overreaction of loss recognition but Hans disagrees. He stated that it will have a more preventative impact and will improve credit quality control systems.
On the tenth day of Christmas, the AICPA gave to me…(top) 10 comment letter areas! A panel on trends in SEC comment letters unveiled the top 10 2018 comment letter areas on Form 10-Ks (from October 1, 2016 – September 30, 2018, with the corresponding 2017 ranking in parenthesis):
- Non-GAAP financial measures (1)
- MD&A (2)
- Revenue recognition (5)
- Fair value measurements (4)
- State sponsors of terrorism (9)
- Intangible assets and goodwill (7)
- Acquisitions and business combinations (8)
- Income tax (6)
- Segment reporting (3)
- Contingencies (12)
On the eleventh day of Christmas, the AICPA gave to me…11 GAAP Dynamics team members! Back at our annual meeting in January 2018, we made a goal of unveiling the Revolution, our online training platform, at the AICPA conference. And we did just that! So, all our 11 full-time team members made the trek to Washington D.C. for the launch and a celebration!
On the twelfth day of Christmas, the AICPA gave to me…12 years of Cynthia Fornelli at the Center for Audit Quality! Cynthia Fornelli, who is the first executive director of the Center for Audit Quality (CAQ), focused on the message of working together in her speech. She discussed working together to promote transparency, for the audit of the future, and to fight reporting fraud. But this speech was going to be her last AICPA conference speech, as Cynthia is retiring in the Spring of 2019 after working to enhance audit quality at the CAQ for 12 years! She also announced a new publication from the CAQ called Emerging Technologies: An Oversight Tool for Audit Committees.
As always, the Big 4 has released their own documents, which provide additional detail on the highlights of the 2018 AICPA conference:
From all of us at GAAP Dynamics, we wish you a happy holiday season and many thanks for all your support throughout 2018. Here’s to a fantastic 2019!
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