On December 30, 2019, the Chair of the Securities and Exchange Commission, the SEC’s Chief Accountant, and the Director of the SEC’s Division of Corporation Finance issued a joint statement regarding the role of audit committees in financial reporting, as well as their oversight responsibilities. The statement reminds audit committees, in connection with year-end reporting, that:

  • The audit committee contributes to setting the tone for a company’s financial reporting, contributing to creating and maintaining an environment that supports the integrity of the financial reporting process, and setting expectations for candid communications with the auditor and management. To set an appropriate tone at the top, an audit committee should communicate with the independent auditor to understand the audit strategy and status, and ask questions regarding issues identified by the auditor and understand their ultimate resolution.
  • Compliance with auditor independence rules is a shared responsibility of the audit firm, the issuer and its audit committee.
  • The audit committee plays an important role in contributing to management’s successful implementation of new GAAP standards, including the new revenue and lease standards, and in monitoring management’s processes to establish and monitor controls and procedures over adoption and transition of new standards.
  • Audit committees are responsible for overseeing ICFR, including in connection with their consideration of management’s assessment of ICFR effectiveness and, when applicable, the auditor’s attestation.

The joint statement also reminds audit committees of the year-end financial reporting process under PCAOB AS 1301, Communications with Audit Committees, which requires the auditor to communicate with the audit committee regarding certain matters related to the conduct of the audit and to obtain certain information from the audit committee relevant to the audit. The statement also reminds audit committees and issuers that the SEC Staff remains focused on the use of non-GAAP measures, LIBOR discontinuation and transition related risks, and the critical audit matters (“CAMs”) requirement, which will require that audit committees engage in a discussion with the auditors regarding the standard and each of the identified matters.

The full text of the joint statement can be found here.