SEC stresses need for high-quality, timely information

SEC Chief Accountant Sagar Teotia issued a public statement emphasizing the importance of high-quality, timely financial information for the capital markets during COVID-19. The statement provides disclosure reminders about a company’s ability to continue as a going concern, and reiterates the importance of financial reporting controls and the vital role of audit committees.

Applicability

• Public companies

Relevant dates

• Effective immediately

Key impacts

Chief Accountant Sagar Teotia emphasized the important role that each participant of the financial reporting system plays to provide timely, decision-useful information to investors and the capital markets.

He offered observations and reminders that promote high-quality financial reporting, which he noted to be particularly important during the current period of uncertainty.

• Companies should ensure that significant judgments and estimates are disclosed in an understandable and useful manner for investors – consistent with the company’s facts and circumstances.
• As financial reporting processes are adapted for telework or other changes in the company’s environment, any such changes that materially affect, or are likely to materially affect, its internal control over financial reporting (ICFR) must be disclosed in quarterly filings in the quarter the changes occurred. 
• In each reporting period, including interim periods, management should consider whether events and conditions raise substantial doubt about the entity’s ability to continue as a going concern.  Where substantial doubt about the entity’s ability to meet its obligations exists, management should consider its plans to alleviate substantial doubt, if applicable, and consider the relevant disclosures. 
• Auditors have a responsibility to evaluate management’s going concern assessment and conclusions. Although an interim review is not designed to identify conditions or events that indicate substantial doubt, an auditor may become aware of those conditions or events in the course of performing an interim review. 
• Companies are encouraged to continue to consult  with the Office of the Chief Accountant (OCA) to address complex or emerging issues they encounter as a result of COVID-19. 
• Audit committees have a vital role in the financial reporting system, and the oversight role that audit committees play is critical in the current environment. 
• OCA continues to be actively engaged with US standard setters, including the FASB and PCAOB, as well as international standard setters such as the IASB and IOSCO.