Attention Audit Committees: SEC Offers Year-End Observations and Reminders

January 6, 2020

On December 30, the SEC published a statement highlighting a number of potential areas of focus for audit committees as the 2019 calendar year-end financial reporting season approaches.

The statement begins with general observations in the following areas, among others:

  • Tone at the Top – Audit committees are encouraged to create and maintain an environment that supports the integrity of the financial reporting process and the independence of the audit.
  • Auditor Independence – Audit committees are encouraged to periodically consider whether corporate changes or other events could affect auditor independence.
  • Generally Accepted Accounting Principles (GAAP) – Audit committees are encouraged to engage proactively with management and auditors in the implementation process of new GAAP standards to understand management’s implementation plan, including whether the plan provides sufficient time and resources to develop well-reasoned judgments and accounting policies.
  • Internal Control over Financial Reporting (ICFR) – Audit committees should have a detailed understanding of identified ICFR issues and engage proactively to aid in their resolution.

The statement also offers three more specific observations:

  • Non-GAAP Measures – Audit committees should understand whether—and how and why—management uses non-GAAP measures and performance metrics.
  • LIBOR – Audit committees should understand management’s plan to identify and address the risks associated with the expected discontinuation of LIBOR.
  • Critical Audit Matters (CAMs) – Audit committees are encouraged to work with the auditor to understand the nature of each expected CAM, the auditor’s basis for the determination of each CAM and how each CAM is expected to be described in the auditor’s report.

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