SEC accounting update: A publication highlighting recent SEC accounting news and discussions
May 2013 articles:
Report on financial reporting fraud issued
The Center for Audit Quality (CAQ) has issued a report, An Analysis of Alleged Auditor Deficiencies in SEC Fraud Investigations: 1998 – 2010 (the Report). The Report examines auditor involvement in fraudulent financial reporting cases cited in SEC enforcement actions issued from 1998-2010. According to the CAQ, during the 13-year period, there were 87 sanctions against external auditors in SEC fraud investigations involving publicly traded companies. Primary results cited in the Report include the following:
- Based on companies with available information for the 87 SEC investigations, the associated registrant companies were primarily small (median revenues and assets under $40 million) and concentrated in four key industries (over 40 percent of the sample is in financial services / insurance, general manufacturing, telecommunications, or consumer goods manufacturing).
- Based on available information for the 87 SEC investigations, 58 percent of the audit reports issued for the last fraudulently reported financial statements included an unqualified opinion with no additional report modifications. The other 42 percent of the companies received unqualified audit opinions on the last fraudulently reported financial statements, but those reports included explanatory paragraphs that addressed other issues noted by the auditor, such as highlighting changes in accounting principle or going concern issues.
- The Report looked at 81 Accounting and Auditing Enforcement Releases (AAERs) involving sanctions against auditors. The top five areas cited by the SEC in these 81 AAERs involved the following: (1) failure to gather sufficient competent audit evidence (73 percent of the cases); (2) failure to exercise due professional care (67 percent); (3) insufficient level of professional skepticism (60 percent); (4) failure to obtain adequate evidence related to management representations (54 percent); and (5) failure to express an appropriate audit opinion (47 percent).
The CAQ is an autonomous, nonpartisan, nonprofit group based in Washington, DC It is governed by a board that comprises leaders from the public company auditing firms, the AICPA and three members from outside the public company auditing profession. The organization is affiliated with the AICPA.
Read a copy of the Report from the CAQ >
SEC Regulations Committee meeting minutes published
The Center for Audit Quality SEC Regulations Committee has issued minutes from its joint meeting with the staff of the SEC held on March 19, 2013. This committee meets periodically with the SEC staff to discuss emerging technical accounting and reporting issues relating to SEC rules and regulations. Topics discussed at this meeting included the following:
- Pro forma adjustments under Rule 11-02(b)(6) of Regulation S-X;
- Rulemaking under the Jumpstart Our Business Startups Act;
- Recommendations by the SEC Advisory Committee on Small and Emerging Businesses;
- Complying with Rule 3-09 of Regulation S-X when the registrant’s and investee’s fiscal year ends differ by six months;
- Applying the Annual Report "grace period" in Rule 3-09 of Regulation S-X in connection with a registration statement;
- Measuring the significance of a recently acquired subsidiary or issuer guarantor under Rule 3-10(g) of Regulation S-X; and
- Application of the updating requirements for Rule 3-05 financial statements when Rule 3-06 of Regulation S-X has previously been used to satisfy the audited financial statements requirement in the most recent year.
The meeting minutes also indicate that the Division of Corporation Finance plans to hold a "Financial Disclosure Roundtable" on different perspectives about what information should be included in a company’s basic financial statements versus its broader financial reporting package (e.g., in MD&A). No date has been set for this roundtable.
View the March 19, 2013, meeting minutes >
SEC Chairman White committed to enhancing agency’s profile as a globally focused regulator
SEC Chairman Mary Jo White recently spoke about global regulatory issues at the Investment Company Institute’s General Membership Meeting. Ms. White indicated that enhancing the SEC’s profile as a globally focused regulator is an ongoing priority. Ms. White indicated that from "accounting standards to Ponzi schemes, from annual reports to OTC derivatives, the SEC is determined to maintain a regulatory structure that accommodates jurisdictional differences without lowering standards." Topics discussed by Ms. White in her remarks included:
- International accounting standards;
- International oversight;
- Foreign Corrupt Practices Act; and
- Fraud and insider trading.
Regarding international accounting standards, Ms. White indicated that finding common ground with regulatory counterparts remains a priority, but did not provide any update on the status or timing of any further decisions on the use of IFRS by companies in the US.
View a copy of Ms. White’s remarks >
Co-Directors to the Division of Enforcement named
The SEC announced that Acting Director George Canellos and former federal prosecutor Andrew Ceresney have been named Co-Directors of the Division of Enforcement.
Mr. Canellos, 48, has been serving as Acting Director since January, and previously had been the division’s Deputy Director since June 2012. He played a key role in developing the division’s Cooperation Program and in generating numerous programmatic, policy, and legislative initiatives and critical decisions on national priority enforcement actions.
Previously, Mr. Ceresney, 41, served as a Deputy Chief Appellate Attorney in the United States Attorney's Office for the Southern District of New York, where he was a member of the Securities and Commodities Fraud Task Force and the Major Crimes Unit. As a prosecutor, Mr. Ceresney handled numerous white-collar criminal investigations, trials and appeals, including matters relating to securities fraud, mail and wire fraud, and money laundering.
Read the news release from the SEC >
Anne K. Small named SEC’s General Counsel
The SEC announced that Anne K. Small has been named General Counsel. Ms. Small comes to the SEC from the White House Counsel’s Office where she has been serving as Special Assistant to the President and Associate Counsel to the President since October 2011. She has advised on legal policy questions with a focus on economic issues. Ms. Small previously worked at the SEC as Deputy General Counsel for Litigation and Adjudication, helping to oversee enforcement matters, appellate cases, and adjudications.
Read the news release from the SEC >
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