SEC Looks at Changing Audit Committee Reports

by Edith Orenstein

Saying it’s time for a detailed review, U.S. Securities and Exchange Commission Chair Mary Jo White announced Tuesday night she has asked the SEC staff to see if the existing audit committee report can be made more useful to investors.

“The audit committee reporting requirements have not changed significantly in a number of years and I think it is time to take a look at whether improvements can be made,” White said.

The SEC Chair’s remarks were made at a dinner of the Financial Accounting Foundation, the board of trustees that oversees the Financial Accounting Standards Board.

White added that her request that SEC staff examine the existing report of the audit committee, a report included with each public company’s Form 10-K, was “not part of the Disclosure Effectiveness project,” a broader initiative announced previously by the SEC.

Updating the FAF Trustees on the SEC’s Disclosure Effectiveness project, following on earlier remarks by Keith Higgins, Director of the SEC’s Division of Corporation Finance, [see: Higgins Frames SEC’s Disclosure Project], the SEC chair emphasized the SEC’s outreach goals to the FAF Trustees, noting:

... the staff will ask investors, companies, legal and accounting professionals and other market participants to share their views about the improvements that could be made to our disclosure requirements for the benefit of both investors and companies.

Work on the Disclosure Effectiveness project is underway, according to the SEC chair, within the Division of Corporation Finance led by Higgins, and the Office of the Chief Accountant, led by Paul Beswick. As announced by the SEC last week, Beswick will be leaving the SEC to return to the private sector. At this time, there is no word as to whether one of the current deputy chief accountants will be named chief accountant, or who will be named chief accountant upon Beswick’s departure.

Acknowledging the FASB’s Disclosure Framework project, White’s remarks can be viewed as painting dual goals of the Disclosure Initiative Project: first and foremost, to benefit investors, and secondarily, to benefit financial statement preparers. Toward that end, the SEC staff will work with FASB, said White, to:

  • identify ways to improve the effectiveness of disclosures in financial statements, and
  • to minimize duplication with other existing disclosure requirements.
What About IFRS?

Invoking remarks of two of her predecessors, Mary Schapiro and Elisse Walter, at previous FAF dinners on the subject of pending SEC action on the use of International Financial Reporting Standards by U.S. public companies, White reiterated that the SEC’s core position on IFRS has not changed since the Commission’s Feb. 2010 Statement. The commission said, in part, “…a single set of high-quality globally accepted accounting standards will benefit U.S. investors and ...this goal is consistent with our mission.”

Where does the SEC stand on IFRS for U.S. companies today? With a number of key questions remaining for investigation, as noted in the SEC Staff’s final Staff Report on IFRS and reiterated by Chair White to the FAF, and with certain rule-making projects taking priority arising from the economic downturn, closure on the status of the use of IFRS by U.S. companies has not been found.

For those who may have been drinking their tea quietly at the FAF dinner so as not to miss the SEC Chair’s answer, or for others have been reading the tea leaves, I would suggest keep sipping slowly, because “I cannot answer these questions tonight,” said White.

However, she added, the SEC is continuing to consider the issue, and “I hope to be able to say more in the relatively near future.”

Enforcement, Rulemaking, Accounting Standard-Setting

Other topics covered in White’s speech to the FAF Trustees included SEC Enforcement and Rulemaking initiatives, and the SEC’s relationship with the FASB on Accounting Standard-Setting.  Read the full text of SEC Chair Mary Jo White’s May 20, 2014 speech to the FAF.