As year-end approaches, many companies will be focused on preparing their annual reports. Recent comments from various representatives of the Securities and Exchange Commission accounting staff emphasized the importance of maintaining strong and effective internal control over financial reporting (“ICFR”). At the American Institute of Certified Public Accountants Conference in Washington, D.C., SEC Chief Accountant Wesley R. Bricker and SEC Deputy Chief Accountant Marc Panucci both addressed ICFR. Mr. Panucci stated that ICFR remains a significant area of focus for the SEC, including through the coordinated efforts of the SEC’s Office of the Chief Accountant, the Division of Corporation Finance and the Division of Enforcement. Mr. Panucci also noted that earlier this year, the SEC brought and settled a case against an issuer, members of its management, the audit partner and the issuer’s third-party consultant involving the inadequate evaluation of an identified control deficiency. Additional takeaways from their remarks include the following:

  • Management, audit committees and auditors should engage in regular dialogue on ICFR assessments, as timely and effective communication among these parties is important for accurate assessments of ICFR and reliable financial reporting that benefits investors.
  • Management has the responsibility to carefully evaluate the severity of identified control deficiencies and to report, on a timely basis, all identified material weaknesses in ICFR. Any required disclosure should allow investors to understand the cause of the control deficiency and to assess the potential impact of the identified material weakness.
  • It is important to maintain competent and adequate accounting staff to accurately reflect the company’s transactions and to augment internal resources with qualified external resources, as necessary.
  • Management has to take responsibility for its assessment of ICFR, and that responsibility cannot be outsourced to third-party consultants. At the same time, third party-consultants can play an important and critical role when assisting management in its evaluation of ICFR.

Mr. Bricker’s speech is available at: https://www.sec.gov/news/speech/keynote-address-2016-aicpa-conference-working-together.html. Mr. Panucci’s speech is available at: https://www.sec.gov/news/speech/panucci-2016-aicpa.html.