Our entire CPA team had the pleasure of attending the 2022 AICPA & CIMA Conference on Current SEC and PCAOB Developments in Washington D.C. from December 12th – 14th. This year was the 50th anniversary of the conference, so how did the AICPA kick it off? With mimosas! Below are the biggest takeaways of the conference from each of our CPAs (besides the mimosas, of course).
From Mike Walworth/Vicky Hale:
Our biggest takeaway has nothing to do with accounting has we actually did not attend the conference per se. As one of the underwriters of the conference, we had a booth, and Mike and I were the ones to greet the people who visited it. Boy, does it feel good to be back together again!
After almost two years of virtual training, virtual meetings, virtual happy hours, virtual everything, it felt wonderful to be back at a conference in person making real connections with real people! We were able to reconnect with new friends, old friends, former colleagues, clients, and each other – whether it was at the booth, over a meal, or just chatting during a snack break. We love being in front of a live classroom, but we also love just connecting with you and hearing what is going on out there in the “real world” of accounting, auditing, and financial reporting. Hearing from you is what helps keep our training fresh and relevant!
Thank you to everyone who stopped by to say hello, entered our prize raffle, or played Plinko with us to win some fun GAAP swag during the conference. We hope we can see you back in the classroom soon!
From Bob Laffler – Environmental, Social and Governance (ESG) Reporting
For those of a certain generation, perhaps this Naughty by Nature reference will resonate: You down with ESG? Yeah, you know me! And so is the accounting profession! Perhaps one of the most common topics at the conference is that accounting firms, corporations, and regulators are gearing up for sustainability reporting. The SEC’s recent proposal related primarily to climate and greenhouse gas emissions, and its comparisons to related disclosure requirements in the European Union, were discussed at length.
What made the biggest impression on me was the passion (ok, let’s not read too much into this, it was an accounting conference, so it’s all relative) with which the speakers spoke when it comes to this topic. Companies and firms have put those who care about this topic in charge of their ESG reporting groups. This seemed to translate into a thoughtful and thorough approach to ESG reporting and a clear aim to comply with these requirements to the best of their abilities.
It won’t be easy, however. It was clear from their presentations and conversations that ESG reporting is still in its infancy, and compliance with the reporting requirements have numerous challenges. One of the challenges that was noted is the “1%” threshold for reporting (in the audited financial statements) the positive and negative financial impacts of severe weather events and other natural conditions and transition activities on each financial statement line item, as well as climate-related costs incurred. Identifying these items were specifically noted as requiring significant judgement and collection of data that is generally not currently available.
I’ve heard ESG reporting compared to SOX 404 in terms of its potential impact to and business opportunities for accountants and auditors. The profession is clearly gearing up to be ready for these potential opportunities in the years ahead!
From Rachel Klein – Accounting Guidance for Crypto Assets
Cryptocurrency and the concept of digital assets continue to be in newspaper headlines and were brought up countless times during the conference. The accounting guidance is quite limited with respect to crypto, so I was looking forward to hearing the standard-setting plans from both the IASB and FASB.
Just before lunch on Monday, IASB Chair Andreas Barckow kicked off the IASB Update session. He explained the IASB's list of priorities for 2023 and then said something I didn't expect...the IASB did not add a project on crypto to their short list of priorities!
The Chair explained that there are two criteria considered when adding a project:
- Is there a gap in the current guidance and are investors lacking in receiving the information they need?
- Is the issue prevalent and significant across industries and jurisdictions?
At this time, the IASB did not feel these criteria were met! What?! I was confused because I would have said that both criteria were met! Mr. Barckow explained that the current literature does in fact address the accounting treatment of cryptocurrencies via an interpretation by the IFRS Interpretations Committee. In their response, they noted that such assets are accounted for as either an intangible at cost with an option to measure at fair value using the revaluation method criteria or as inventory at fair value for broker dealers. The second criterion was not met because the IASB felt "there is little evidence that the accounting for cryptocurrencies is of global significance or prevalence for companies reporting under IFRS." This is the point where I was extremely puzzled because it feels like we hear something new about crypto every day (and, unfortunately, most the news is not good!) - how is crypto not prevalent?!
On Tuesday afternoon, it was the FASB's turn to provide an update on its standard-setting plans, and the FASB didn't let me down! The Board shared that they continue to make progress towards issuing guidance for crypto and digital assets. To date, they have determined the scope of the crypto project, decided to require fair value measurement, and have drafted financial statement presentation and disclosure requirements. During this conference session, they shared that a proposed ASU is anticipated in early 2023. So, we’ll stay tuned until then!
From Jenny Lukac – Importance of Proper Disclosures and Investor Communication
On the first day of the conference Paul Munter, Acting SEC Chief Accountant, reminded all of us that the accounting profession is all about communication. And now, it’s more important than ever to increase transparency and provide useful information to investors. I believe the SEC is taking this message to heart, as they announced at the conference they had recently released revised c&DIs for non-GAAP financial measures (which continues to be a top area of SEC comment letters). The revised C&DIs do not contain any new guidance, but clarify previously communicated views relating to prominence, what it means for non-GAAP measures to be misleading, and what represents a normal operating expense.
Both the SEC and FASB reiterated that investors are asking for more disaggregated information to be disclosed in the financial statements, so there was a significant amount of time spent on another tried-and-true topic, segment reporting. We were reminded that the identification of operating segments and what is being reviewed by the CODM are important areas, which should be aligned. The FASB currently has a proposed ASU, which would require additional disclosures if a company only has identified one reportable segment. The ASU also focuses on significant segment expense disclosures and would allow more than one measure of segment profit or loss to be disclosed (if certain criteria are met).
Companies should not wait for proposed requirements to become final – voluntarily provide information if you think it will be useful to investors (and maybe think about switching to the direct method of presenting your cash flows!).
From Chris Brundrett – Learning for Enforcement Actions
It is always interesting to hear about the latest SEC enforcement actions…the more things change, the more they stay the same! As I was listening to the presentation by members of the SEC’s Division of Enforcement about notable enforcement actions this year, it struck me that while the world is getting more and more complicated (e.g., ESG, cryptocurrency, etc.), what led to each of the notable enforcement actions discussed was quite simple. First up was fraudulent revenue recognition, a simple case of key members of management circumventing controls and creating fictitious purchase orders. Next, good old-fashioned capitalization of operating expenses to “fix” declining margins in a period of rising costs. Then, it was improper presentation of debt as non-current when there had been a covenant violation. Finally, they discussed taking advantage of a non-GAAP accounting policy to generate foreign currency gains. Okay, this one might be considered a little more complicated, however, the guidance on foreign currency transactions hasn’t changed in decades.
Hearing this, I also started thinking about the breaking news during the week of the conference that a certain CEO of a certain failed crypto company had been indicted. Although this occurred in what is arguably one of the most complicated industries on the planet, it was all quite simple. The company basically had no controls and no real accounting system (sorry QuickBooks, but you aren’t meant for multibillion-dollar companies!) which led to the “misappropriation” of customer funds. Basically, flat out stealing of customer assets! Interesting that the SEC didn’t mention this company or the news at all, but why should they, it is a private company in an unregulated industry which is outside of their jurisdiction. It will be interesting to see what happens with this industry in the future and whether we’ll be hearing about potential regulation at next year’s conference. Stay tuned!
If you had the chance to attend the conference, let us know your takeaways in the comment section below.
We’d also like to take this opportunity to thank all our wonderful clients and supporters. We had a great 2022 and we are excited for what 2023 has to offer! From all of us at GAAP Dynamics, we wish you a happy holiday season!
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