On April 3, the Securities and Exchange Commission (SEC) released, Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 to, among other things, stress the importance of auditor independence in audit and financial reporting quality. Noting that the Office of the Chief Accountant (OCA) and other SEC divisions and offices are monitoring the impact of the corona virus pandemic on the global capital markets, the SEC stated that it is available to help companies, auditors, and others with complex accounting, financial reporting, independence and audit issues.
The SEC noted that it's working with the Financial Accounting Standards Board (FASB) to address the impacts of COVID-19 and acknowledged the difficulty of making judgments and estimates in highly uncertain times. The SEC continues to follow a policy of not objecting to well-reasoned judgments.
With regards to federal legislation (CARES Act) which allows some entities to defer or suspend application of two provisions under Generally Accepted Accounting Principles (GAAP): "...For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available..."
Of course, OCA is also working with the Public Company Accounting Oversight Board (PCAOB) to address emerging issues, including the 45-day relief period from PCAOB inspections provided to firms.
On auditor independence, OCA said this:
"OCA also remains actively focused on independence matters in these unprecedented times. Auditor independence is foundational to the credibility of the financial statements. As we have consistently noted, auditor independence is a shared responsibility among audit committees, management, and their auditors. Management and audit committees should be aware of how an auditor independence violation may affect the company’s required SEC filings. We again note that we are available for consultation as needed, and we are continuing to work on consultations we have received in this area."
The SEC also noted its leadership role in the Monitoring Group, which is continuing its efforts to develop recommendations to reform international standard-setting bodies.
In closing, the SEC urged participants in the financial reporting system to continue to work together to provide investors with the high quality financial information they need to make investment decisions in uncertain times.
