Guidance for Consulting with the Office of the Chief Accountant
May 12, 2017
The SEC staff encourages companies and their auditors to consult with the Office of the Chief Accountant (OCA) on accounting, financial reporting, and auditing concerns or questions, especially those involving unusual, complex, or innovative transactions for which no clear authoritative guidance exists as well as on issues regarding auditor independence. Additionally, Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies (December 12, 2001), encourages public companies to consult with the Commission's accounting staff if companies, management, audit committees or auditors are uncertain about the application of specific GAAP principles related to "critical accounting policies." This document provides guidance as to the recommended form and content of correspondence when consulting the Commission's accounting staff in OCA1
Organization and Function of OCA
OCA is a stand-alone office within the Commission, and the Chief Accountant reports directly to the Chairman. He serves as the principal advisor to the Chairman, the Commission and the Commission staff on financial reporting, disclosure and auditing matters. OCA staff work closely with domestic and international private-sector accounting and auditing standards-setting bodies, consult with registrants, auditors, and other Commission staff regarding the application of accounting standards and financial disclosure requirements, and assist in addressing problems that may warrant enforcement actions. OCA has approximately 40 CPA's, led by the Chief Accountant and three Deputy Chief Accountants, and is generally organized into three operational groups: accounting, professional practice and international affairs. The typical staff person in OCA has ten to fifteen years of public accounting, industry and/or regulatory experience.
OCA, DCF-OCA and IM-OCA are not the same
OCA has a different role than does the separate Office of Chief Accountant within the Division of Corporation Finance (DCF-OCA) or the separate Office of Chief Accountant within the Division of Investment Management (IM-OCA). Although OCA, DCF-OCA and IM-OCA often work closely together on registrant issues, they are separate offices with different missions. The Division of Corporation Finance (DCF) oversees corporate disclosure compliance with the securities laws and SEC Regulations, while the Division of Investment Management (IM) oversees mutual fund disclosure compliance with the Investment Company Act of 1940 and SEC Regulations. In part DCF and IM do this by reviewing some (but not all) documents that registrants are required to file with the Commission. The Chief Accountants of DCF and IM advise their Division Directors on financial reporting matters including those involving compliance with generally accepted accounting principles and the proper content of financial statements and related disclosures. DCF-OCA also supports the DCF industry groups by acting as a technical resource for the industry group accountants. Similarly, IM-OCA supports the IM disclosure review groups by acting as a technical resource for IM accountants.
The Division of Enforcement also has a separate Office of Chief Accountant. Accordingly, companies should consider which Chief Accountant's office they wish to correspond with prior to initiating contact. Generally, questions concerning the application of generally accepted accounting principles should be sent to OCA, while questions concerning the age, form, and content of financial statements required to be included in a filing or other requirements of SEC regulations should be addressed to DCF-OCA or IM-OCA, as appropriate. All of the chief accountants meet periodically to coordinate efforts.
OCA Involvement in Registrant Accounting Matters
Because accounting matters for which companies and their auditors seek OCA's views often involve complex fact patterns, OCA staff is able to provide the clearest guidance when companies provide a written submission outlining the factual details, accounting considerations, financial statement impact, as well as the disclosures expected to accompany the accounting. Correspondence of this nature is commonly referred to as a "pre-filing" submission. The staff believes the pre-filing process is best accomplished through written submissions on a named basis because of concerns that a clear understanding of the facts may not be accomplished solely through oral and/or anonymous communications. While the staff does accept informal, oral inquiries, generally, these inquiries will involve broader, emerging issues that are not company or fact specific. As such, responses to no-name or informal telephone inquiries cannot be relied upon as formal positions of the staff.
If a company chooses not to pre-file an accounting issue with OCA, the company may nevertheless encounter OCA during a review of their filing by DCF or IM. The accountants in DCF and IM, not those in OCA, perform the reviews of the financial reporting and disclosure information contained in documents submitted to the SEC. The accounting staff in DCF or IM may have questions regarding technical accounting and disclosure matters discussed in a document and they will often consult initially with DCF-OCA or IM-OCA and then with OCA as to the answer. As such, OCA serves in a consulting role similar to the role of advisor or national office of an accounting firm.
Another way that an issue may find its way to OCA on a post-filing basis is if a company asks OCA to review an accounting decision made by DCF or IM. A company would initiate such a review by OCA by informing DCF or IM of its intention to request such a review. In cases of OCA reviews, companies do not need to make a submission directly to OCA in accordance with this guidance if all of the relevant information is contained in the comment letter responses from the company to DCF or IM, although a separate submission to OCA may serve to expedite the process.
OCA Involvement in Auditor Independence Matters
Public companies have a responsibility to ensure that the auditors of their financial statements are independent, as do the auditors themselves. Regulation S-X sets forth the form and content of and requirements for financial statements required to be filed with the Commission, including the requirements for auditor independence. Ensuring auditor independence is as important as ensuring that revenues and expenses are properly reported and classified. If the auditor's independence is impaired then the company has not satisfied the requirement to file financial statements audited by an independent accountant. Discovery of an independence issue at the last minute can adversely affect an otherwise timely filing and call into question the reliability of the company's financial reports.
Because auditor independence matters often involve unique and complex fact patterns, OCA staff is able to provide the clearest guidance when companies or auditors provide a written submission outlining the factual details of the auditor independence issues under consideration. The staff believes this process is best accomplished through written submissions on a named basis because of concerns that a clear understanding of the facts may not be accomplished solely through oral and/or anonymous communications. However, in some situations, particularly when asked to clarify certain independence rules, oral communication is acceptable.
Form of Delivery
When sending correspondence to OCA, please note in the email, fax cover sheet or address whether the request should be directed to the Accounting Group - Interpretations or the Professional Practice Group - Independence. Addressing the letter as such rather than to the Chief Accountant, a Deputy Chief Accountant, or other individual OCA staff member will help expedite the process.
Generally, the most timely receipt and attention to correspondence is facilitated through the use of electronic mail.2 Companies may email a submission to OCARequest@sec.gov, with a copy to firstname.lastname@example.org (companies subject to review by Corporation Finance) or IMOCA@sec.gov (companies subject to review by Investment Management), as appropriate.
If a company prefers to send paper copies of the submission, 1 copy should be sent to OCA and 1 copy should be sent to either Corporation Finance or Investment Management, as appropriate, at the following addresses:
Accounting Group - Interpretations (or Professional Practice Group - Independence, if appropriate)
Office of the Chief Accountant
U.S. Securities and Exchange Commission
100 F Street, N.E.; Mail Stop 6628
Washington, D.C. 20549-6628
Office of Chief Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.; Mail Stop 4546
Washington, D.C. 20549-4546
Office of Chief Accountant
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street, N.E.; Mail Stop 4720
Washington, D.C. 20549-4720
Whether sending a submission by email, fax or paper copy, there is no need to send a submission by more than one method.
Content of Correspondence
Based on our experience, OCA can more quickly address a company's questions when the following information is provided:
- Overview of the nature of the company's business, together with condensed financial information including assets, stockholders' equity, revenues, gross margin, pretax income, and other relevant measures.
- Timing considerations such as pending filing deadlines or registration efforts.
- Detailed information regarding the specific facts and circumstances giving rise to the accounting, financial reporting, auditing or independence issue, including but not limited to the business purpose of the transaction or arrangement if it is not otherwise apparent.
- Specific accounting, financial reporting, auditing or independence questions raised.
- The conclusions reached and the basis for such conclusions.
- Outline of the possible alternative answers considered and rejected.
- Analysis of the current and future financial statement impact of the alternatives considered.
- What you specifically intend to disclose about the proposed accounting, and where it will be disclosed.
- The audit committee's views on the proposed accounting treatment or auditor independence issue.
- Whether the company or its auditors are aware of any prior SEC staff position related to the issue.
- The conclusion of the company's auditor with respect to the accounting, auditing or independence issue and whether the submission and the proposed resolution of the issue have been discussed with the auditor's national office or other technical resource, and if so, when this discussion occurred.
- A description of any current or previous discussions or correspondence with the Divisions of Enforcement, Corporation Finance, or Investment Management or any other Division or Office of the Commission regarding the issue(s) in the submission.
Companies should include copies of relevant documents that may assist the staff in reaching a conclusion. Such documents might include: organizational charts, contracts or legal documents, relevant press releases, board of directors' minutes or presentations.
The submission should include the name and telephone number for a contact person with the company. Also, include the names of the company's local audit partner and other technical resources consulted, such as national office personnel.
What to expect from OCA
While the process employed by OCA staff to address accounting, auditing and auditor independence issues often varies based on the complexity of the issue, available resources, or registrant time constraints, among other variables, the following is a description of a typical process.
Submissions received into the Accounting Group or the Professional Practice Group generally are assigned to a team of OCA staff members. The team leader is usually a staff member who has experience and knowledge about the topics the company will be discussing with the staff. This person will be the point of contact for all discussions with OCA related to this specific issue, including inquiries about the status of the staff's deliberations. Generally, the team leader will contact the company within 3 days of receiving the submission.
Each team member will read the submission and related accounting or auditing literature. A search of the accounting or auditing literature will be performed to ensure that all relevant references are discussed in the submission. The team will also consider how OCA has previously addressed similar accounting or auditing issues to see if a precedent has been set for the issue at hand or if there is a past decision to which the current issue may be analogized.
The team will exchange preliminary views and will usually create a list of remaining questions for the company and its auditors. The team leader typically will call the company to set up a conference call to discuss the questions and solicit answers. OCA often requests the auditor's contact person also be on the conference call in order to facilitate a comprehensive discussion and the staff's understanding of the technical issues.
During this conference call, the company can expect the team leader to ask someone from the company to briefly explain the issue in order to bring focus to the call. The team will then ask questions and engage the participants in a discussion of factors they see as critical to the analysis, as well as give the company a chance to explain the recommended accounting treatment or auditing resolution. As a result of this call, the company may be asked to prepare additional written correspondence for the staff, perhaps to provide answers to additional questions, to document a complex response that is better understood on paper, or to submit requested items, such as internal financial analyses or relevant presentations to the board of directors or audit committee members. A timely submission of additionally requested items is critical to moving the consultation forward.
If an issue is answered by the accounting or auditing literature or is not unusual, novel or controversial, and is resolved by mutual agreement of the staff and the registrant, then OCA's review usually would end at this point. If not, the team members may discuss the issue with the Senior Associate Chief Accountant - Accounting Interpretations and the Deputy Chief Accountant - Accounting or the Deputy Chief Accountant - Professional Practice.
The team may consult with the staff of the Financial Accounting Standards Board, the PCAOB or national office staff of several non-participating public accounting firms to gather outside opinions and interpretations of the specific issue being addressed. During such consultations, the name and identifying characteristics of the company and transaction are concealed so as to maintain confidentiality. The information gathered during these discussions is only one element in the staff's decision-making process.
Once a decision has been made as to the appropriate resolution for the accounting, auditing or independence issue, the company will be contacted by phone to communicate the staff conclusion and basis thereof. At this point, the company may wish to request a review of the OCA staff accounting, auditing or independence conclusion by the Chief Accountant, which is often accomplished through an in-person meeting between the company and the staff. The company should inform the team leader if it wishes to request such a review.
A company can expect two to three weeks to pass between receipt of a submission and delivery of a conclusion. Expect more time if the initial submission is incomplete or the follow-up submission is delayed; less if the first submission is thorough and no follow-up submission is required. If at any time in the process company contacts have any questions, they should not hesitate to call the team leader.
For a company's records, upon the resolution of an issue, a company may prepare and send to the staff a letter describing the company's understanding of the staff's position. In those instances, a draft of the letter should be sent for staff comment. The final letter will likely be incorporated into OCA's files to document the position taken by the staff with respect to the specific company matter.
Filings with DCF or IM that are made with an issue pending in OCA should indicate within the transmittal correspondence the nature and status of the issue. Filings made shortly after the resolution of an issue, cleared on a pre-filing basis, should indicate within the transmittal correspondence the nature of the issue and the response provided by the OCA staff.
1 This document, Guidance for Consulting with the Office of the Chief Accountant, addresses the routine processing of accounting matters in the Office of the Chief Accountant, and does not provide any individual registrant or person any rights or privileges and places no obligation on the SEC or its staff in connection with any matter before the SEC or its staff.
2 Companies are reminded, however, that electronic mail is not confidential, and others may intercept and read the electronic mail.