On June 23, 2020, the U.S. Securities and Exchange Commission’s Office of the Chief Accountant (OCA) issued a statement on the continued importance of high-quality financial reporting in light of the significant impacts of COVID-19, including considerations for accounting and auditing. This statement builds on his April 3, 2020, statement on financial reporting in the COVID-19 environment.

After recognizing the diligent efforts of companies and auditors in the most recent reporting cycle, OCA emphasized the continued importance of its role going forward “in the functioning of our markets and in our collective national effort to mitigate the COVID-19 pandemic.” It also called attention to the OCA’s continued engagement with various organizations, including the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the International Accounting Standards Board, and other accounting and auditing standard setters and regulators.

The statement highlighted the following areas for continued focus by the OCA and reporting companies in preparing financial disclosures:

• Reasonable Judgments: Understanding that companies have needed to make significant judgments and estimates, OCA noted that it generally has not objected to well-reasoned judgments. But any significant judgments and estimates should be disclosed in a manner that is understandable and useful to investors.
• Disclosure Control Procedures (DCP) and Internal Control over Financial Reporting (ICFR): Public companies are required to maintain DCP and ICFR, the effectiveness of which must be evaluated as of the end of each fiscal quarter and at the end of each fiscal year, respectively. OCA understands that in response to the pandemic, preparers may be adapting their financial reporting processes, which may include changes with respect to how controls operate or can be tested. If any such change is reasonably likely to affect an entity’s ICFR, such change must be disclosed in the quarterly filing in the fiscal quarter in which it occurred.
• Ability to Continue as a Going Concern: If there is substantial doubt about an entity’s ability to continue as a going concern, the company should disclose information about the conditions giving rise to the substantial doubt, management’s evaluation of the significance of those conditions relative to the entity’s ability to meet its obligations, and whether management’s plans alleviated that doubt.
• Complex or Emerging Issues: If an entity encounters complex, unique or novel questions as a result of COVID-19 or other emerging issues, it is encouraged to contact OCA for consultation.

OCA also stressed the critical role that audit committees play in these times of uncertainty, and it encouraged audit committee members to provide direct feedback to OCA regarding current market developments and perspectives on improving oversight of financial reporting.

Authorship Credit: Janet A. Spreen, Teresa Goody Guillén and Samuel F. Toth