Auditors Urged to Focus on Disclosures for New Accounting Standards
Is your company “revenue-ready”? The Ticker has previously reported on the need for companies to prepare for timely implementation of the FASB’s new revenue recognition standard, which will take effect in 2018 for most public companies. Any companies not yet feeling a sense of urgency should rethink their position in light of a new alert issued by the Center for Audit Quality (CAQ).
CAQ Alert No. 2017-03, SAB Topic 11.M – A Focus on Disclosures for New Accounting Standards, encourages public company auditors to “focus on evaluating the adequacy of management’s disclosure of impending changes in accounting principles” and addresses requirements under the SEC’s Staff Accounting Bulletin (SAB) No. 74 (codified in SAB Topic 11.M). A recent Compliance Week article says that the CAQ alert reminds auditors that the SEC “is taking a dim view of vague or boilerplate disclosures under Staff Accounting Bulletin No. 74.” The CAQ alert cautions that even when the impact on financial statements is not significant, “the accounting standard’s requirements related to footnote disclosures may still be a significant change.” Among other categories of required disclosure, the alert notes that the “status of the implementation process should be disclosed, including disclosures related to significant implementation matters yet to be addressed or if the implementation process is lagging.”
Rather than waiting for an auditor comment shortly before a 10-Q or 10-K filing deadline, companies are urged to work proactively with their auditors to ensure that their disclosures for new accounting standards are sufficient.