The Securities and Exchange Commission’s Chief Accountant, Wesley Bricker, addressed attendees at a conference of the Institute of Management Accountants. Mr. Bricker commented on the global nature of the capital markets. He noted that “American investors are investing directly in the securities of foreign private issuers and companies based outside the United States and registered in non-U.S. jurisdictions. At the end of 2016, U.S. investors had invested $9.9 trillion (of which U.S. mutual funds had invested over $4.3 trillion, and U.S. pension funds had invested over $1.3 trillion) in equity and debt securities listed in non-U.S. jurisdictions.” In light of the interconnectedness of global markets, Mr. Bricker emphasized the importance of collaboration among organizations involved in financial reporting and the significance of promoting high-quality financial reporting. Mr. Bricker commented on the importance of internal control over financial reporting, as well as on the role of preparers of financial reports. Mr. Bricker also noted the role of auditors as gatekeepers. He also touched on the role of the PCAOB and the role of audit committees. Mr. Bricker outlined a number of questions that audit committee members ought to pose to a company’s external auditors, including the following:
- In an audit of the financial statements, was the external auditor able to rely on a company’s internal control over financial reporting?
- If not, which of the business processes included the internal controls on which the auditor did not (or could not) place reliance? What were the factors that prevented reliance?
- Were any significant deficiencies or material weaknesses identified (and communicated in writing)?
- How did management consider that feedback in preparing the financial statements, including in its period-end closing processes?
Mr. Bricker noted that communications between the audit committee members, the auditors and management regarding financial reporting and internal control over financial reporting should be candid. The full text of his remarks is available here.