Newly appointed US Securities and Exchange Commission (SEC) Chief Accountant Wesley Bricker made clear in a far-ranging speech last week that high-quality financial information is the lifeblood of the capital markets and every aspect of the US economy.
“Our markets are strong. In 2015 alone, businesses raised $2.27 trillion of funding in the US capital markets, and by one estimate, the US capital markets accounted for 42 percent of the global bond market and 40 percent of global equity market capitalization,” Bricker said during the American Institute of CPAs’ Conference on Current SEC and PCAOB Developments in Washington, DC, on Dec. 5. “Yet, notwithstanding the strength, there is more to do.”
Having “fair, orderly, and efficient capital markets that facilitate capital formation while protecting investors is a pillar of the US economy, and the quality and performance of the US economy supports and facilitates many of America’s other strengths, as well as public policy initiatives,” said Bricker, who was named SEC chief accountant on Nov. 22.
But there’s much broader change at work, he added, citing the following:
- Global economies face growing public- and private-sector obligations, large central bank balance sheets, and negative interest rates.
- The population is broadening, as baby boomers are retiring and millennials are assuming greater roles and influence.
- Technology is penetrating ever deeper into all aspects of personal and business lives.
- Institutions are changing – not just in the United States but in other countries that are home to significant capital markets.
All of it will require innovative thinking, and CPAs can play a big role in that, said Bricker, who is a CPA.
“Even as we work to ensure the public remains confident in the ethics, professionalism, and services of CPAs, we must also position ourselves and future generations of accountants and auditors to innovatively identify and solve the challenging and complex issues facing the evolving public interest,” he said.
That’s best accomplished with a diverse and inclusive workplace of people who hail from different cultures and perspectives, Bricker noted.
“I hope that the [accounting] profession will also continue to lead in the capital markets by promoting those values of ethics and diversity as we together foster the efficient functioning of our capital markets, which depend on continuous flow of reliable financial information,” Bricker said.
Here’s a snapshot of his focal points.
New GAAP standards (revenue recognition, leases, financial instruments, and credit losses). Internal controls will be vital in implementing the new Financial Accounting Standards Board rules, which are designed to improve comparability of companies’ reported revenues.
Inspectors and the SEC Office of the Chief Accountant will be looking for increased disclosures in 2016 filings and during 2017 about the significance of the impact – quantitative or qualitative – of revenue recognition and the other new standards.
“Companies may find it helpful to investors to incorporate a discussion of the anticipated effects of the standard into their investor outreach activities to foster timely absorption of the information by market participants,” Bricker said.
And they best get a move on: 75 percent of public companies still were assessing the new revenue recognition standard in October, he said. Preparers, audit committees, and auditors at those companies should explore reasons for the delays and let investors know the status of implementation.
Accounting standards for leases, financial instruments, and credit losses will be adopted after revenue recognition, so companies should start assessing those standards, too, he added.
Non-GAAP measures. Progress has been made in addressing “problematic practices,” Bricker said. But more work is needed in evaluating how appropriate a measure is, the role it plays, and the effectiveness of disclosures.
Audit committees should understand management’s decisions about non-GAAP measures and how they compare to what other companies do. If measures replace the uncertainty of businesses with “smooth earnings,” accelerate unearned revenues, or defer incurred expenses, those need careful evaluation, he said.