SEC Chief Accountant Sagar Teotia issued a Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19. Teotia indicates that the SEC’s Office of the Chief Accountant (OCA) is “taking a proactive approach and have been engaged with stakeholders across the financial reporting ecosystem – e.g., preparers, auditors, audit committee members, investors, standard setters, and other regulators – on issues related to current market developments.” Highlights of Teotia’s statement include:
- OCA recognizes that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates. Certain judgments and estimates can be challenging in an environment of uncertainty. OCA has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective.
- The recently passed Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). OCA has received inquiries from preparers and auditors where the preparer has concluded that election of the narrow and limited options in Sections 4013 and 4014 of the CARES Act would be deemed to be “in accordance with GAAP.” For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the OCA staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available. Section 4013 of the CARES Act provides a temporary relief to financial institutions (including credit unions) from GAAP as relates to troubled debt restructurings. Section 4014 of the CARES Act provides optional temporary relief to financial institutions (including credit unions) from the GAAP impacts of CECL (current expected credit loss) standards.
- OCA remains actively focused on auditor independence matters in these unprecedented times. OCA indicates that auditor independence is foundational to the credibility of the financial statements and is a shared responsibility among audit committees, management, and their auditors. Management and audit committees should be aware of how an auditor independence violation may affect the company’s required SEC filings.
- The challenges associated with many of the accounting issues in the current environment also exist internationally. OCA is actively engaged in discussions with the IASB on the impact of COVID-19, including through its involvement as the vice-chair of IOSCO’s Committee 1 on Issuer Accounting, Audit and Disclosure. Committee 1 is dedicated to improving the development of accounting and auditing standards, and enhancing the quality and transparency of the information that investors receive from listed companies, including financial institutions.
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