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Statement on OCA’s Focus on High-Quality Financial Reporting During an Unusual Year and a Discussion of our Upcoming Priorities

Washington D.C.

Dec. 7, 2020

The Securities and Exchange Commission ("SEC" or "Commission”) disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This Statement expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

Introduction

It goes without saying that this has been an unusual and challenging year for our economy and nation. Our capital markets have faced significant challenges and uncertainty due to the impacts of the COVID-19 pandemic. Throughout this period, investors have benefitted greatly from a continued flow of high-quality financial information upon which to base their investment decisions, and this high-quality information, in turn, contributed significantly to the continued functioning of our capital markets. This flow of high-quality information to investors has been due, in large part, to a shared commitment by all parties in the financial reporting system—preparers, auditors, audit committees, and many others—to meeting the rules, regulations, authoritative standards, and professional responsibilities that exist within financial reporting.

Over the past year, the SEC's Office of the Chief Accountant ("OCA") has been actively engaged with stakeholders throughout the financial reporting system to address the financial reporting impacts of COVID-19 and other emerging issues. Our office moved quickly and proactively to address complex accounting, auditing, and other financial reporting issues as part of our nation’s collective response to the ongoing pandemic. Among other OCA activities this year that addressed challenges and uncertainties in our financial reporting system, we:

  • Issued a number of public statements[1] to share our perspectives on emerging issues and remind stakeholders of their professional responsibilities and the importance of continuing to provide high-quality financial information to investors and our markets;
  • Provided staff views on a wide variety of highly complex accounting, financial reporting, and auditor independence issues;
  • Worked closely with the Financial Accounting Standards Board (“FASB”) and the Financial Accounting Foundation (“FAF”) in their efforts to address the impacts of COVID-19, and supported the transition for a new FASB Chair;
  • Engaged directly with the Public Company Accounting Oversight Board (“PCAOB”) regarding the impacts of COVID-19 on PCAOB operations, audit inspections, audit quality, and other issues;
  • Continued to address issues related to international audit quality, including through leadership on the Monitoring Group’s issuance of recommended reforms to the audit and ethics standard-setting process in July 2020;[2]
  • Supported high-quality financial reporting internationally through our participation in the International Organization of Securities Commissions (“IOSCO”) and the IFRS Foundation Monitoring Board (“Monitoring Board”); and
  • Played a key role in the Commission’s rulemaking efforts, including recently adopted amendments to the Commission’s auditor independence rules.

In this statement, we describe these and other OCA efforts over the past year to work with stakeholders in addressing the impacts of COVID-19 and other emerging issues, we share our perspectives on other recent OCA activities, and we discuss our upcoming priorities for the coming year.

Background and Role of the Office of the Chief Accountant

OCA is led by the Chief Accountant, who serves as the principal adviser to the Commission on accounting and auditing matters arising in the administration of the federal securities laws.[3] In that role, OCA interacts with stakeholders across the financial reporting system to support the proper functioning of our capital markets, which depend on a regular supply of high-quality financial information to enable investors, lenders, and other stakeholders to make informed decisions.

As SEC Chairman Jay Clayton has stated, issuers providing investors with financial and operational disclosures that are clear, high-quality, and timely has always been a fundamental principle for the Commission and our capital markets.[4]

OCA seeks to fully leverage its diverse team of individuals, with deep expertise in domestic and international accounting, auditing, and financial reporting matters, to support a robust financial reporting system that provides high-quality financial information to the millions of investors and other stakeholders who participate in our capital markets. There are four groups within OCA: the Accounting Group, the Professional Practice Group, the International Group, and the Office of the Chief Counsel.

The Accounting Group, led by Deputy Chief Accountant John Vanosdall, provides expert advice related to accounting and financial reporting matters, leads the SEC’s efforts to oversee accounting standard setting by the FASB, monitors international accounting standard setting by the International Accounting Standards Board (“IASB”), participates in the Commission’s rulemaking efforts, and consults with registrants, auditors, and others on the application of accounting standards and financial disclosure requirements.

The Professional Practice Group, led by Deputy Chief Accountant Diana Stoltzfus, provides expert advice related to auditing, independence, and internal controls and assists the Commission in its oversight of the PCAOB. The Professional Practice Group also manages the resolution of auditor and registrant independence matters.

The International Group, led by Deputy Chief Accountant Paul Munter, provides expert advice on international auditing and accounting issues and works with the Accounting and Professional Practice groups to provide input on both governance and technical matters to international accounting, auditing, and regulatory organizations, including IOSCO.

The Office of Chief Counsel, led by Chief Counsel Natasha Guinan, provides legal guidance to the Chief Accountant and the other OCA groups in support of the Commission’s mission, and collaborates closely with the Division of Enforcement in all aspects of its program related to financial reporting, including recommending disciplinary actions against accountants and accounting firms pursuant to Rule 102(e) of the Commission’s Rules of Practice.

OCA Response to Impacts of COVID-19

We remain appreciative of the diligent efforts of stakeholders across the financial reporting system—standard setters, preparers, auditors, regulators, audit committees, and many others—working together in response to the impacts of COVID-19 to continue to provide much-needed high-quality information to investors. In times like these, it is critical that we each continue to apply existing guidance, comply with all of the professional standards (e.g., GAAP, IFRS, PCAOB auditing standards), and act with the utmost integrity, fulfilling each of our respective professional responsibilities to meet the needs of investors and support the overall economy and our nation.

We know that rising to meet this challenge has not been an easy task. We also acknowledge that challenges and uncertainty continue. Only through the continued collective efforts of all stakeholders, applying the same formula of working collaboratively and in accordance with our shared professional responsibilities, are we able to safeguard our financial reporting system and continue to provide a steady stream of high-quality financial information to investors and our markets. To be totally clear, our focus has been and will remain squarely on providing investors with the highest quality information possible.

To assist market participants in these ongoing efforts, the SEC has published a summary of its work across the agency in response to COVID-19, which you can find on the Commission’s website.[5] The summary provides background and more specific context as to how the SEC is continuing to work with investors and other market participants as it executes its mission during this period of national challenge. Below, we describe in more detail some of OCA’s specific efforts this year to address the wide-ranging financial reporting impacts of COVID-19, in addition to our oversight and collaboration with the FASB, PCAOB, and other domestic and international standard-setting and regulatory bodies.

Public Statements

We regularly communicate our views on emerging issues and areas of focus for preparers, audit committees, auditors, investors, and others through public statements, speeches, and other means as necessary or appropriate.

This year we have participated virtually in a large number of conferences and meetings with companies, industry groups, and others. Over the last year, we also released or jointly released several public statements[6] in an effort to provide our views on emerging issues in a timely, transparent, accessible manner and to support the Commission in its response to the pandemic. Among other items, those statements addressed:

  • Our perspectives in April and June 2020 on the evolving impacts of COVID-19 on financial reporting and the importance of high-quality financial reporting in light of those impacts;
  • Our collaboration with the FASB, PCAOB, and international organizations on their respective COVID-19 responses;
  • Consultations on complex and emerging issues in the current environment;
  • The importance of disclosure controls and procedures (“DCP”) and internal control over financial reporting (“ICFR”); and
  • Observations and reminders on a number of potential areas of focus for audit committees as they fill their vital role in the financial reporting system through their oversight of financial reporting.

Further, IOSCO released a statement[7] in May about COVID-19 related impacts. As described below, we view our participation in IOSCO and the IOSCO Committee on Issuer Accounting, Audit and Disclosure (“IOSCO Committee 1”) as a meaningful way to engage in multilateral collaboration and communication with other international regulators and to contribute to high-quality international accounting and auditing. Among other things, the IOSCO statement describes the crucial role that high-quality financial reporting plays in providing investors and other stakeholders with information with which to evaluate an issuer’s operating performance, financial position, liquidity, and future prospects. We applaud IOSCO and its members for the close international collaboration in providing this clear guidance to enhance the quality of financial reporting across the globe.

Resolution of Complex Issues Arising Due to Impacts of COVID-19

Through OCA’s accounting consultations process, stakeholders can seek the views of the OCA staff on the application of accounting and disclosure requirements to novel, unique, or complex accounting and financial disclosure issues. Our engagement with stakeholders through these consultations also informs us more broadly and helps to guide our response to emerging issues in support of the capital markets.

The rapidly changing environment due to COVID-19 and the related responses of a variety of stakeholders brought about the need for quick action on a large volume of widely impactful topics. These topics included issues directly related to the impacts of COVID-19 as well as other complex issues due to the environment in which companies have been operating. Among other items, issues that we have addressed include:

  • Interpretations of certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”);[8]
  • The accounting for loan participation agreements under the Main Street Lending Program;[9]
  • The application of the troubled debt restructuring guidance to certain loans impacted by the effects of COVID-19;
  • The application of the asset impairment and leasing frameworks to similarly impacted assets;
  • Numerous accounting and financial reporting issues relating to capital raising transactions;
  • Implementation issues related to recently issued accounting standards, including revenue, leases, and current expected credit losses; and
  • Other complex issues in the application of the guidance on revenue recognition, consolidation, business combinations, financial assets, hedging, debt/equity, contingencies, long-lived assets, and other areas.

In certain cases, these accounting consultations involved close collaboration with many parties, including preparers, audit committees, auditors, standard setters, other regulators, and other governmental agencies, and the coordination of our collective efforts to provide timely feedback on issues to support and protect both investors and our capital markets.

We remain available for consultation and encourage stakeholders to contact our office with questions they encounter as a result of COVID-19 or other emerging issues.[10] We value our interactions with engaged stakeholders regarding issues they are facing, and we will continue to be informed by such feedback as we focus on investors’ need for high-quality financial information, consistent with our mission and ongoing priorities.

Importance of Well-Reasoned Judgments and Estimates

In fulfilling their financial reporting responsibilities, companies are often required to make significant judgments and estimates to address a variety of accounting and financial reporting matters. Certain judgments and estimates can be particularly challenging in an environment of increased uncertainty or volatility. As we have previously stated, OCA staff has consistently not objected to well-reasoned judgments made by companies, and we will continue to apply this perspective.[11] Companies should also ensure that significant judgments and estimates are disclosed in a manner that is understandable and useful to investors, and that the resulting financial reporting reflects and is consistent with the company’s specific facts and circumstances.

Importance of Internal Control over Financial Reporting and Disclosure Controls and Procedures

We have long emphasized, and will of course continue to emphasize, the importance of ICFR to high-quality, reliable financial information. Public companies are required to maintain both ICFR and DCP. Management is required to evaluate the effectiveness of its ICFR at the end of each fiscal year, and DCP at the end of each fiscal quarter. We understand that many registrants made changes during the past year to their financial reporting processes in a remote work environment. As we have said in the past, we remind preparers that if any change materially affects, or is reasonably likely to materially affect, an entity’s ICFR, such change must be disclosed in quarterly filings in the fiscal quarter in which it occurred (or fiscal year in the case of a foreign private issuer).[12]

Other Recent OCA Activities and Our Ongoing Priorities

Through our unique position in the financial reporting system, we have the opportunity to engage with stakeholders and obtain their perspectives on a wide range of issues, both domestically and internationally. We seek to align our ongoing priorities with the Commission’s three-part mission[13] and related strategic plan.[14] In addition to our efforts described above to address issues related to the impact of COVID-19, we have focused our efforts over the past year on our ongoing priorities across the following key areas where we believe we can be of most help to investors:

  • Engagement with Stakeholders
  • Rulemaking
  • Oversight of the FASB
  • Oversight of the PCAOB
  • International Accounting, Audit, and Disclosure Matters

Engagement with Stakeholders

Stakeholder engagement is a key component of each phase of the financial reporting process. Stakeholder engagement is critical to OCA’s ability to support the Commission’s mission to protect investors. Through a diverse mix of interactions with stakeholders across the financial reporting ecosystem, we gain a broad and unique perspective on financial reporting developments and related risks, both domestically and internationally, which informs our views on issues that have the potential to be impactful to investors.

Earlier in this Statement, we briefly discussed some recent consultations with our office. Our consultation process is one of the most important ways we engage with preparers, auditors, audit committees, and others. Registrants, be they domestic registrants or foreign private issuers, can consult with OCA on complex, novel, or unique issues they face on accounting matters under both U.S. GAAP and IFRS, and on auditor independence matters under the auditor independence rules. We view consultation submissions to our office as the initiation of a constructive dialogue. We are proud of our proactive approach in this area and appreciate the opportunity to work in a collaborative manner with registrants and others.

Another important area of stakeholder engagement for OCA is our interactions with audit committees. As we have said, the audit committees of companies play a vital role in the financial reporting system through their oversight of financial reporting, including ICFR and the external, independent audit process. We believe the measures related to audit committees have proven to be some of the most effective financial reporting enhancements included in the Sarbanes-Oxley Act.[15] In these times of rapid change and increased uncertainty, the need for the oversight role that audit committees play is as critical as ever. Our ongoing two-way dialogue with audit committee members and related organizations is a crucial component of our efforts to promote high-quality financial reporting. We will continue to be proactive in engaging with audit committee members to understand current market developments as well as to solicit their perspectives on improving the oversight of financial reporting.

Rulemaking

Role in Rulemaking

Pursuant to the Administrative Procedure Act[16] and the federal securities laws, the Commission engages in rulemaking to update or create new rules. As the principal adviser to the Commission on accounting and auditing matters, OCA is often asked to play a key role in Commission rulemaking projects, including by considering the impact of proposed rules or rule amendments on accounting or auditing matters. OCA’s involvement occurs throughout the lifecycle of a rule, including in consideration of stakeholder feedback. We highly value efforts of stakeholders to review proposed rules and to provide feedback in public comment letters, and we take seriously the Commission’s responsibility to consider, weigh, and respond to such feedback.

Auditor Independence Amendments

Pivotal to audit quality is that the registered public accountant is independent with respect to its audit client both in fact and in appearance. This independence is foundational to the credibility of the financial statements and, as we have consistently noted, it is a shared responsibility among audit committees, management, and their auditors. We have remained focused on independence matters as a key priority during the past year.

In October 2020, the Commission adopted final amendments to certain auditor independence requirements in Rule 2-01 of Regulation S-X.[17] Informed by decades of OCA staff experience applying the auditor independence framework, the final amendments modernize the rules and more effectively focus the analysis on relationships and services that may pose threats to an auditor’s objectivity and impartiality. The final amendments result in auditor independence requirements that will be used to evaluate specific relationships and services, with a focus on protecting investors against threats to the objectivity and impartiality of auditors.[18]

Oversight of the FASB

High-quality financial reporting relies in part upon a high-quality accounting and disclosure framework under which companies report financial information in a timely, comparable, and understandable manner. Pursuant to the federal securities laws, the Commission has designated the FASB to serve as an independent, private sector accounting standard setter that promulgates the standards comprising this framework in the U.S.[19] OCA supports the Commission in its oversight of the FASB.

The FAF, through its Board of Trustees, is responsible for the oversight, administration, financing, and appointment of the FASB. We continue to engage with the FAF in support of their important oversight responsibility for the FASB. We have worked closely with FAF Chair Kathleen Casey throughout the year on a number of issues, and express our appreciation for her efforts, and those of the other FAF Trustees, to support the FASB.

In addition to our engagement with the Board of Trustees of the FAF in support of their important responsibility for the oversight, administration, and finances of the FASB, we also work directly with the FASB. The FASB promulgates standards for public companies in the U.S. and the Commission enforces those standards, which includes interpreting the established standards. We believe that a standard setter that follows an established and clear due process that considers the input and views of all stakeholders provides the best path to the high-quality accounting standards that are crucial to the financial reporting process.

This year, the FASB quickly recognized the challenges its stakeholders were facing and, in response, shifted its priorities to focus on stakeholder support. Some of the recent significant and effective actions taken by the FASB included:

  • Shifting its priorities to focus on those standard-setting projects that, given the current environment, would best support the financial reporting system’s objective of providing high-quality financial information to investors;
  • Continuing to work closely with other stakeholders, including OCA and other regulators, on other unique accounting issues companies have faced; and
  • Issuing FASB staff question-and-answer (“Q&A”) documents on lease accounting[20] and hedge accounting[21] due to the effects of COVID-19.

This approach was all the more significant given that it took place during a time of leadership changes at the FASB. In July, Richard (Rich) Jones became the new FASB Chair, with a smooth transition due to the efforts of prior FASB Chair Russell (Russ) Golden, other FASB Board members, the FASB staff, and the FAF. There was no disruption in the efficacy or efficiency of the FASB during this period of transition.

The FASB’s current agenda is focused on potential improvements to accounting standards, including, among others, important projects on identifiable intangible assets and subsequent accounting for goodwill, distinguishing liabilities from equity, and improving the accounting for asset acquisitions and business combinations. The FASB is taking a thoughtful approach in developing its agenda consistent with its mission,[22] with near-term objectives that acknowledge the environment in which companies are operating, including the magnitude of the new standards on revenue, leases, and credit losses that companies have recently implemented or are about to implement.

Oversight of the PCAOB

The PCAOB plays a critical role in the financial reporting system, overseeing the audits of issuers and SEC-registered brokers and dealers to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.[23]

The PCAOB's responsibilities include:

  • Establishing or adopting auditing and related attestation, quality control, ethics, and independence standards;
  • Registering public accounting firms that prepare audit reports for issuers, brokers, and dealers;
  • Inspecting registered public accounting firms’ audits and quality control systems; and
  • Investigating and disciplining registered public accounting firms and their associated persons for violations of specified laws, rules, or professional standards.[24]

The Commission oversees the PCAOB in accordance with the Sarbanes-Oxley Act, including the appointment of its board members, approval of PCAOB rules and standards, and approval of the PCAOB's budget and accounting support fees. OCA advises the Commission on these important oversight responsibilities, including through direct engagement with the PCAOB.

PCAOB’s Response to COVID-19

The PCAOB demonstrated its commitment to its mission and the health and safety of its employees and others by swiftly and successfully transitioning to remote operations, granting temporary inspection relief to registered firms, and publishing important reminders for auditors engaged in audits nearing completion.[25] Additionally, the PCAOB quickly shifted the focus of its target team, established in 2019 to perform inspections on specific topics across a number of inspected firms, to (1) obtain an understanding of any changes in a firm’s policies, procedures, or methodologies in response to COVID-19 and (2) review June 30, 2020 audits and reviews of interim financial information for issuers affected by the pandemic.[26] We commend the PCAOB for its response to the pandemic and its continued commitment to providing timely, transparent, and useful information to its stakeholders.

PCAOB Areas of Focus

The PCAOB is currently focused on many different areas, including improvements in audit quality, enhanced stakeholder engagement, responses to emerging technologies, and operational excellence.[27]

In addition to the COVID-19 measures previously discussed, the PCAOB has been focused on communicating more effectively with investors, preparers, audit committees, auditors, and other key stakeholders in order to improve audit quality. This commitment has been demonstrated in a number of ways:

  • The PCAOB issued certain inspection reports in a new streamlined format to enhance readability and make the results of inspections more accessible and understandable to users.[28] The PCAOB also issued a guide to reading the new reports and has asked for public feedback on the updated format.[29]
  • During 2020, the PCAOB continued its outreach to audit committees, with a focus on the effects of COVID-19 on financial reporting and the audit, and published a summary of these conversations.[30]
  • The PCAOB also continues to actively engage with key stakeholders through webinars,[31] PCAOB staff publications, [32] and communications about observations and perspectives from the most recently completed inspection cycle.[33] These communications are aimed at providing useful, timely, and relevant information to auditors, audit committees, and others with the objective of improving audit quality.

We commend the PCAOB for its efforts toward achieving its goal of enhancing audit quality.

OCA Monitoring of PCAOB Standard-Setting Initiatives

In support of its mission, the PCAOB establishes and maintains high-quality auditing and related professional practice standards. OCA is involved throughout the lifecycle of the PCAOB’s standard-setting process—from the identification of current or emerging audit issues, to the development of a research agenda and work on standard-setting projects, through the post-implementation review.

Additionally, both the PCAOB and OCA continue to focus on the successful implementation of the Auditor’s Reporting Model, including the process of implementing critical audit matters (“CAMs”), which took effect in June 2019 for audits of large accelerated filers and will become effective later this year for audits of all other companies to which the requirements apply. Close coordination between auditors and stakeholders has been essential to the success of the implementation process to date. The PCAOB conducted extensive stakeholder outreach and published an interim analysis on CAM implementation[34] that communicated findings and provided stakeholders with early insights on the initial impact of CAM requirements. OCA will continue to monitor CAM implementation.

Throughout 2020, OCA coordinated closely with the PCAOB on these and other activities aligned with its strategic plan.[35] We applaud the PCAOB on the steps taken toward reaching its strategic goals, particularly in light of the challenging current environment, and we look forward to continuing to work with the PCAOB in support of its initiatives.

International Accounting, Audit, and Disclosure Matters

Our capital markets are increasingly global and interconnected, with many foreign private issuers listing on U.S. markets and many U.S. investors and public companies holding, managing, or otherwise investing in foreign equity or debt securities of companies whose financial statements are presented and audited in accordance with international standards. Given the importance of international accounting and audit-related standards to the strength of the global financial reporting system, we devote significant time and resources to international matters.

The Monitoring Group

OCA’s role on the Monitoring Group is an important priority for our office and one in which we spend a significant amount of time. I co-chair the Monitoring Group,[36] which is a group of international financial institutions and regulatory bodies committed to advancing the public interest in areas related to international audit-related standard setting and audit quality. This role provides a mechanism through which to participate in ongoing dialogue with international audit-related standard setters and others interested in high-quality audit standards developed in the public interest.

The Monitoring Group’s work is conducted with a view toward promoting international audit quality to strengthen confidence in the audits of financial statements. It achieves its aim by working collaboratively with the organizations involved in the overall structure related to international audit and ethics standard-setting, such as the Public Interest Oversight Board (“PIOB”), the standard-setting boards (the International Audit and Assurance Standards Board (“IAASB”) and the International Ethics Standards Board for Accountants (“IESBA”)), the International Federation of Accountants (“IFAC”), and the Global Public Policy Committee (“GPPC”), among others.

On July 14, 2020, the Monitoring Group published the results of its review of the effectiveness of the international audit and ethics standard-setting process.[37] The Monitoring Group’s review involved a thorough process that resulted in recommended reforms based on extensive outreach to and engagement with stakeholders. The recommended reforms aim to make the international standard-setting system more responsive to the public interest by using a multi-stakeholder approach to the development of standards with the expectation that doing so will lead to improvements in audit quality around the world. OCA is actively involved in the establishment of a transition plan and we look forward to working with the Monitoring Group and other stakeholders to support implementation of the recommended reforms over an expected three-year implementation period.

The Monitoring Group also intends to continue to fulfill its responsibilities under its charter, including multilateral discussions relating to international audit quality, regulatory and market developments that have an impact on auditing, and oversight of the PIOB.

We anticipate that the Monitoring Group will continue to engage broadly on a range of issues to promote international audit quality. We continue to encourage the various stakeholder groups that are impacted to engage in this productive dialogue because such stakeholder engagement is essential to our shared goal of enhancing international audit quality.

International Organization of Securities Commissions

IOSCO is a group of international securities regulators that develops, implements, and promotes adherence to internationally recognized standards for securities regulation. Our participation in IOSCO, including through Paul Munter serving as vice-chair of the IOSCO Committee 1, provides us with opportunities to both share our perspectives and practices with other international regulators and to learn about other areas globally to inform our collective work to advance high-quality international accounting and auditing. OCA’s participation in IOSCO will continue to be a key priority for the office.

International Financial Reporting Standards and the Monitoring Board

Issuers and investors continue to have a very high interest in the quality of IFRS, as they produce and use financial information prepared in accordance with IFRS on a regular basis. We participate in the development and high-quality application of IFRS through a number of organizations.

We work within IOSCO Committee 1 to develop comment letters in response to IASB proposals and we also participate in multilateral discussions with the IASB. Additionally, we engage in direct dialog with members of the IASB and staff on topics of mutual interest.

We also participate in the Monitoring Board, which includes international capital markets authorities responsible for setting the form and content of IFRS financial reporting. The Monitoring Board serves to enhance the public accountability of the IFRS Foundation, thereby improving investor protection, market integrity, and capital formation. Through our involvement in the Monitoring Board, we monitor the governance of the IFRS Foundation and the IASB, the development of IFRS, and the application of IFRS.

We look forward to our continued engagement with the IFRS Foundation and to continued interaction with the IASB as part of our normal engagement in standard setting.

Conclusion

As Chairman Clayton has often said, investors, and our public capital markets more generally, have a thirst for clear, high-quality, timely information regarding the financial and operating status of companies.[38] While 2020 has undoubtedly been a challenging year, our financial reporting system has risen to the challenge, and we extend our sincere gratitude to all stakeholders who continue to meet professional standards (e.g., GAAP, IFRS, PCAOB auditing standards) and fulfill their related responsibilities to provide this clear, high-quality, timely information to investors.

The events of 2020, including the emergence of the COVID-19 pandemic and the myriad of associated financial reporting considerations, serve to remind us of the importance of our robust financial reporting system. The resilience of our financial reporting system following the emergence of the pandemic is an incredible testament to the efforts of all stakeholders involved. We also note that many challenges continue, so we remind all stakeholders of the importance of continuing to provide investors with high-quality, decision useful financial information. Consistent with our efforts this year, OCA stands ready to support stakeholder efforts throughout the financial reporting system and to advance the quality of financial reporting for the benefit of investors and our markets.


[1] See Chairman Jay Clayton, Chief Accountant Sagar Teotia, and Division of Corporation Finance Director Bill Hinman, Statement on Role of Audit Committees in Financial Reporting and Key Reminders Regarding Oversight Responsibilities (December 30, 2019), available at https://www.sec.gov/news/public-statement/statement-role-audit-committees-financial-reporting; see SEC Chairman Jay Clayton, SEC Division of Corporation Finance Director Bill Hinman, SEC Chief Accountant Sagar Teotia, and PCAOB Chairman William D. Duhnke III, Statement on Continued Dialogue with Audit Firm Representatives on Audit Quality in China and Other Emerging Markets; Coronavirus — Reporting Considerations and Potential Relief (Feb. 19, 2020), available at https://www.sec.gov/news/public-statement/statement-audit-quality-china-2020-02-19; see Chief Accountant Sagar Teotia, Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 (April 3, 2020), available at https://www.sec.gov/news/public-statement/statement-teotia-financial-reporting-covid-19-2020-04-03; see SEC Chairman Jay Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant Sagar Teotia, SEC Division of Corporation Finance Director William Hinman, SEC Division of Investment Management Director Dalia Blass, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited (April 21, 2020), available at https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting; see Chief Accountant Sagar Teotia, Statement on the Continued Importance of High-Quality Financial Reporting for Investors in Light of COVID-19 (June 23, 2020), available at https://www.sec.gov/news/public-statement/teotia-financial-reporting-covid-19-2020-06-23; see Chairman Jay Clayton, Division of Corporation Finance Director William Hinman, Division of Investment Management Director Dalia Blass, Division of Trading and Markets Director Brett Redfearn, Office of International Affairs Director Raquel Fox, Chief Accountant Sagar Teotia, Statement on SEC Response to the Report of the President’s Working Group on Financial Markets (August 10, 2020), available at https://www.sec.gov/news/public-statement/statement-presidents-working-group-financial-markets; and also see SEC Chairman Jay Clayton, SEC Chief Accountant Sagar Teotia, and PCAOB Chairman William D. Duhnke III, Statement on Third Meeting with Audit Firm Representatives Regarding Audit Quality in Emerging Markets and Recent Developments (Nov. 24, 2020), available at https://www.sec.gov/news/public-statement/statement-audit-quality-emerging-markets.

[2] See The Monitoring Group, Monitoring Group publishes its Recommendations to Strengthen the International Audit and Ethics Standard-Setting System (July 14, 2020), available at https://www.iosco.org/about/monitoring_group/pdf/2020-07-Monitoring-Group-Recommendations-to-Strengthen-the-International-Audit-and-Ethics-Standard-Setting-System.pdf.

[3] 17 CFR 200.22.

[4] See Chairman Jay Clayton, Remarks to the Financial Stability Oversight Council (May 14, 2020), available at https://www.sec.gov/news/speech/clayton-remarks-financial-stability-oversight-council-051420.

[5] See SEC’s “SEC Coronavirus (COVID-19) Response” webpage, available at https://www.sec.gov/sec-coronavirus-covid-19-response.

[6] Refer to footnote 1 for list of public statements issued.

[7] See IOSCO, IOSCO Statement on Importance of Disclosure about COVID-19 (May 29, 2020), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD655.pdf.

[8] Pub. L. 116-136, Coronavirus Aid, Relief, and Economic Security Act.

[9] See Federal Reserve Bank of Boston’s “Main Street Lending Program” webpage, available at https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program.aspx.

[10] More information about how to initiate a dialogue with OCA and what to expect from the consultation process is on OCA’s “Communicating with OCA” webpage, available at https://www.sec.gov/page/communicating-oca.

[11] See, e.g., Chief Accountant Sagar Teotia, Statement on the Continued Importance of High-Quality Financial Reporting for Investors in Light of COVID-19 (June 23, 2020), available at https://www.sec.gov/news/public-statement/teotia-financial-reporting-covid-19-2020-06-23; and also see SEC Chief Accountant Sagar Teotia, Statement in Connection with the 2019 AICPA Conference on Current SEC and PCAOB Developments (December 9, 2019), available at https://www.sec.gov/news/speech/teotia-speech-2019-aicpa-conference.

[12] See Securities Exchange Act of 1934, Rules 13a-15(d) and 15d-15(d), and see Regulation S-K, Item 308(c).

[13] The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. See SEC’s “About the SEC” webpage, available at https://www.sec.gov/about.shtml.

[14] See SEC, U.S. Securities and Exchange Commission Strategic Plan Fiscal Years 2018 – 2022 (October 11, 2018), available at https://www.sec.gov/strategic-plan.

[15] See, e.g., SEC Chairman Jay Clayton, SEC Chief Accountant Sagar Teotia, and SEC Division of Corporation Finance Director William Hinman, Statement on Role of Audit Committees in Financial Reporting and Key Reminders Regarding Oversight Responsibilities (December 30, 2019), available at https://www.sec.gov/news/public-statement/statement-role-audit-committees-financial-reporting.

[16] Administrative Procedure Act, 5 U.S.C. § 551 et. seq.

[17] See SEC, Qualifications of Accountants, Release No. 33-10876 (October 16, 2020), available at https://www.sec.gov/rules/final/2020/33-10876.pdf.

[18] See SEC Press Release: SEC Updates Auditor Independence Rules (October 16, 2020), available at https://www.sec.gov/news/press-release/2020-261.

[19] See Section 19(b) of the Securities Act of 1933; see also SEC, Policy Statement: Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter, Release No. 33-8221 (Apr. 25, 2003) [68 FR 23333 (May 1, 2003)], available at https://www.sec.gov/rules/policy/33-8221.htm.

[20] See FASB Staff, FASB Staff Q&A — Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (April 10, 2020), available at https://www.fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174459740&pagename=FASB%2FFASBContent_C%2FGeneralContentDisplay.

[21] See FASB Staff, FASB Staff Q&A — Topic 815: Cash Flow Hedge Accounting Affected by the COVID-19 Pandemic (April 28, 2020), available at https://www.fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174563622&pagename=FASB%2FFASBContent_C%2FGeneralContentDisplay.

[22] See FASB’s “About the FASB” webpage, available at https://www.fasb.org/facts/.

[23] See PCAOB’s “Mission, Vision, and Valueswebpage, available at https://pcaobus.org/About/History/Pages/mission-vision-values.aspx.

[25] See PCAOB’s “PCAOB’s response to COVID-19” webpage, available at https://pcaobus.org/Pages/response-to-COVID-19.aspx.

[26] See PCAOB Staff, Spotlight: Staff Update and Preview of 2019 Inspection Observations (October 8, 2020), available at https://pcaobus.org/Inspections/Documents/Staff-Preview-2019-Inspection-Observations-Spotlight.pdf.

[27] Refer to footnote 24.

[28] See PCAOB Press Release: PCAOB Issues Six Largest U.S. Firm Inspection Reports in New User-Friendly Format, Guide to Reading Reports (June 1, 2020), available at https://pcaobus.org/News/Releases/Pages/PCAOB-issues-six-largest-US-firm-inspection-reports-new-user-friendly-format-guide-to-reading-reports.aspx.

[29] See PCAOB Staff, Guide to Reading the PCAOB’s New Inspection Report (June 1, 2020), available at https://pcaobus.org/Inspections/Documents/Inspections-Report-Guide.pdf.

[30] See PCAOB Staff, Conversations with Audit Committee Chairs: COVID-19 and the Audit (July 31, 2020), available at https://pcaobus.org/Documents/Conversations-with-Audit-Committee-Chairs-Covid.pdf.

[31] See, e.g., PCAOB Press Release: PCAOB Announces Two Upcoming Webinars (March 20, 2020) available at https://pcaobus.org/News/Releases/Pages/PCAOB-Announces-Two-Upcoming-Webinars.aspx.

[32] See, e.g., PCAOB Staff, Spotlight: Audits Involving Cryptoassets (May 26, 2020), available at https://pcaobus.org/Documents/Audits-Involving-Cryptoassets-Spotlight.pdf.

[33] Refer to footnote 26.

[34] See PCAOB, Interim Analysis Report: Evidence on the Initial Impact of Critical Audit Matter Requirements, PCAOB Release No. 2020-002 (October 29, 2020), available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/Documents/ARM-Interim-Analysis-Report.pdf.

[35] Refer to footnote 24.

[36] The members of the Monitoring Group are the Basel Committee on Banking Supervision, European Commission, Financial Stability Board, International Association of Insurance Supervisors, International Forum of Independent Audit Regulators, IOSCO, and the World Bank Group.

[37] Refer to footnote 2.

[38] Refer to footnote 4.

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