Magazine article The CPA Journal

Current SEC Developments

Magazine article The CPA Journal

Current SEC Developments

Article excerpt


In Brief

Getting It Right the First Time

The topics that the SEC staff addressed at the December 20(01 AICPA Conference on Current SEC Developments included advancing the interests of investors and ear-end reporting matters. The staff emphasized the importance of clear and transparent disclosures in the financial statements and management's discussiOn and analysis. The staff also announced that it will no longer make professional accounting fellOWS' speeches available on the SEC website. Staff speeches on the topics discussed at the conference are similarly not available, with the exception of comments by the SEC chief accountant and the director and chief accountant of the Division of Enforcement

The primary role of the SEC is to protect the interests of investors. Management, auditors, and audit committees help ensure that a company's financial reporting is of the highest quality. Unfortunately, recent events pose a serious threat to the confidence the public has in the financial reporting system.

The Interests of Investors

Robert K. Herdman, the new chief accountant of the SEC's Office of the Chief Accountant, discussed his three-point plan to advance the interests of investors:

* Get it right the first time

* Improve the effectiveness of standards setting

* Modernize financial reporting and disclosure.

To get it right the first time, the staff encourages registrants to preclear unusual or complex accounting issues. This preclearance process enables a registrant to discuss an anticipated transaction, a planned transaction, or other accounting matter with the staff before filing its financial statements with the SEC. The process can avoid second-guessing or restatement at a later date.

The chief accountant or a deputy will be involved early in the preclearance process. The SEC will promptly notify the registrant of the staff assigned to the submission, make some initial inquiries, and inform the registrant if a face-to-face meeting is called for. In some situations, face-to-face meetings help resolve issues more expeditiously by eliminating the time-consuming process of repeatedly requesting additional information and waiting for a response.

Herdman said that the staff would approach submissions with an open mind: The staff is willing to consider all accounting methods permissible under GAAP as long as investors are adequately protected. If the staff addresses an issue that it thinks may apply to many registrants, it will refer that issue to FASB's Emerging Issues Task Force (Fl). This approach would ensure due process and make the issue and its resolution more easily retrievable.

Preclearance process. For the preclearance process to be most efficient, the registrant should provide a clear and comprehensive submission that follows the SEC's revised protocol, available at The submission should include the following:

* An explanation of the business purpose of the transaction

* A discussion of the accounting alternatives considered

* The reasons for the proposed accounting treatment

* Information about related or followon issues that the staff is likely to request

* A draft of the disclosures to be included in the accounting policy footnote, other footnotes, and management's discussion and analysis (MD&A).

Before submitting the matter to the SEC for preclearance, registrants should discuss the issue with their auditors, including a representative of the auditor's national office. In addition, registrants should include the views of their audit committee.

Standards Setting

The second part of Chief Accountant Herdman's plan aims to improve the effectiveness of the standards-setting process. He believes accounting standards should be balanced, avoid complexity, and include implementation guidance sufficient to ensure they will be applied consistently. …

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