Category: Legislative & Regulatory

The SEC Provides Some Breathing Room

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This week, the SEC decided to delay their decision on whetherU.S. companies will be required to convert from GAAP to IFRS. The decision came after nearly two years of anticipation. In February 2010, the SEC stated that it would decide whether or not to require a change in accounting standards after completion of its own work plan as well as convergence projects being undertaken by FASB and IASB. The SEC originally planned to make a final decision in mid-2011, but then extended the date to late 2011. In a speech on Monday, James Kroeker, chief accountant for the SEC, announced that both the work plan and the convergence projects were delayed and consequently a final decision from the SEC is “still many months away.”

The SEC’s delay is due, in part, to a determination by FASB and IASB to slow down and continue consideration on several “key” projects. This decision came after multiple convergence observers suggested adding time for deliberation and due process. This highlights the difficulty in crafting final standards that “represent long-term, implementable, and sustainable improvements,” according to Kroeker.

The delay may relieve many executives across the United States. According to a 2011 PwC survey, 43 percent of respondents believed the pace of recent standard-setting activity was too fast. The same respondents also indicated that the proposed changes to accounting standards would have a “pervasive impact” on their companies. Given the significance of a potential change in accounting standards, the SEC’s decision to delay a decision may be welcome for many in Corporate America.

Update on PCAOB Activity

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This week, the Public Company Accounting Oversight Board (PCAOB) formally issued proposed rules on audit reporting standards (Docket 029: Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits). Following a concept release originally issued in 2009, the proposed rule would require the engagement partner—along with any additional firms that participated in the audit—to be disclosed in the audit report. The window for public comment is open until January 9, 2012.

The PCAOB also has several outstanding concept releases that have the potential to change the relationship between auditors and the board of directors. The comment period for Docket 034: Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements and Related Amendments to PCAOB Standards closed September 30th, but included the use of an “auditor’s discussion and analysis,” (AD&A) as well as expanded use of emphasis paragraphs. Docket 037: Concept Release on Auditor Independence and Audit Firm Rotation is currently open for comment on whether mandatory audit firm rotation would improve auditor objectivity.

While NACD sees room for improvement in the current auditor’s reporting model, in our comment letter to Docket 034, we urge the PCAOB to carefully examine the proposed changes to ensure the benefits of the additional work outweigh the costs. There is concern that these proposals could upset the role management and auditors play in asserting and attesting to information. Additionally, these additions —especially the proposed AD&A—may create confusion regarding responsibilities for oversight of the financial reporting and external audit processes.

NACD continues to comment on the other developments arising from the PCAOB. We plan to alert our membership as future comment letters are released.

PCAOB Chairman James Doty recently spoke at the 2011 Board Leadership Conference. Read the highlights of his commentary at the NACD Blog.