The Importance of High-Quality Financial Information: A Conversation With The SEC


by Morgan Hunsaker

U.S. Securities and Exchange Commission’s (SEC) Chairman and Chief Accountant sat down with Intel's VP of Finance, Principal Accounting Officer, Corporate Controller Kevin McBride for a fireside chat on the state of the capital markets, the role of preparers, auditors, and audit committees, implementation of new accounting standards, and more.

“The bedrock of our capital market system - and when I say ‘our,’ I don’t mean just the United States, I mean around the world - is high-quality financial information. And high-quality audit and effective regulation of that process,” says Jay Clayton. “Every day I'm in this job that becomes more and more apparent to me.”

The Commissioner of the SEC and the Chief Accountant of the SEC, Wes Bricker, spoke to a group of preparers at FEI’s Current Financial and Reporting Issues conference, covering issues like cybersecurity and internal controls. The underlying focus, however, was the importance of high-quality financial information.

Clayton shared that a major focus of the SEC has always been, and will continue to be, the information provided to long-term retail investors who are investing their life savings into capital markets. He urged preparers to keep these retail investors in mind as they decide what information to provide in their SEC filings.

One of the major trends that the SEC’s strategic plan observes and that investors are increasingly seeking advice on is the trend from direct participation by retail investors in our capital markets to indirect participation - using intermediaries to invest for them. This has led to financial information from preparers being aggregated more frequently.

Clayton and Bricker shared that cybersecurity is a pervasive issue that not only affects individual companies, but affects the network of companies and individuals who are now connected. Companies no longer have the responsibility of only protecting their own information, but the integrity of their customer’s information and networks and the SEC are looking for detailed disclosures around the cybersecurity risks that companies are facing.

The corporate control environment and emphasis on internal controls was also a point that the SEC stressed. The SEC recently published a report about multiple companies that fell victim to cyberfraud through business emails, losing millions of dollars as a result of cybersecurity deficiencies. It was noted that nothing is more important than the tone at the top and that senior-level executives, specifically controllers, must emphasize the importance of cybersecurity and processes.

According to Clayton, the SEC is far more concerned and likely to act when they see cybersecurity breaches in companies that do not have strong tones and focuses on internal controls. “Let’s put it in very practical, stark terms. To the extent a company has a problem, if our sense is that the tone was good, we’re much more sympathetic to remediation, resolving and going forward for the company. If our sense is the tone was not positive or, at worse, corrosive, we’re much less comfortable deferring on topics like remediation and moving forward. It’s human nature but I also think it’s where human nature is right.”