Wednesday, August 1, 2018
1:30 p.m. – 2:00 p.m. EDT

During this session, the speakers will address some of the topics that should be among the principal areas of focus for disclosure committees, audit committees and others with responsibility for, or oversight of, reporting company disclosures.  We will focus on:

  • Reviewing risk factor disclosures in light of current areas of staff focus;
  • Policies and procedures related to the use of non-GAAP financial measures;
  • Cyber related disclosures;
  • Perk disclosures; and
  • Implementing recently adopted or new accounting standards.


  • Michael L. Hermsen
    Partner, Mayer Brown LLP
  • Anna T. Pinedo
    Partner, Mayer Brown LLP

For more information, or to register for this session, please visit the event website.

The Securities and Exchange Commission has proposed to amend its auditor independence rules in order to determine whether an auditor is independent if it has a lending relationship with certain shareholders of an audit client during its professional engagement period.  The auditor independence standard set forth in Rule 2-01 of Regulation S-X requires auditors to be independent of audit clients both “in fact and in appearance.”  Rule 2-01(c)(1)(ii)(A) addresses debtor-creditor relationships and requires that one consider whether an audit firm has a lending relationship with an entity having record or beneficial ownership of more than 10% of the equity securities of either the firm’s audit client or any entity that is a controlling parent company of the audit client, a controlled subsidiary of the audit client, or an entity under common control with the audit client.  Several aspects of the current rule have resulted in challenges, especially for funds and fund families.  The proposed amendments would focus solely on beneficial (not record) ownership, would replace the bright-line 10% ownership test with a “significant influence” test, would add a “known through reasonable inquiry” standard in relation to identifying beneficial owners of the audit client’s equity securities, and would amend the definition of “audit client” for a fund under audit to exclude from the provision funds that otherwise would be considered “affiliates of the audit client.”  In assessing whether a lender has the ability to exert a significant influence over the audit client’s operating and financial policies reference is made to the principles articulated in the Financial Accounting Standard Board’s ASC Topic 323, Investments–Equity Method and Joint Ventures.  The ability to exert a significant influence would require a facts-and-circumstances assessment of, among other things, board representation, participation in policy-making, material intra-entity transactions, interchange of management personnel, or technological dependency.  The proposing release notes that a benefit of the proposed amendments would be that compliance monitoring would be less burdensome.  This seems unlikely in light of the analysis required to be undertaken to assess any “significant influence,” which is fact-based and seemingly more subjective than the current standards.

In a wide-ranging speech today, SEC Chief Accountant Wesley Bricker addressed recent changes and forthcoming changes to accounting standards, including the new revenue recognition standard.  He noted the need to continue to focus on the implementation of the lease accounting standard next year and the credit losses standard.  Bricker also commented on accounting for equity investments in other companies.  Bricker touched briefly on non-GAAP financial measures, reminding the audience that reporting companies must have disclosure controls and procedures that address the use of non-GAAP measures.  In this regard, he noted that audit committees have an important role to play in reviewing the presentation of non-GAAP measures, understanding the purpose and integrity of the non-GAAP measures, evaluating whether the measures are consistently prepared and presented period to period, and understanding how corrections of errors in such measures will be presented.  Bricker also noted the importance of the audit committee’s role with respect to the disclosure of market risks.  Bricker mentioned the Commission’s recently proposed rulemaking addressing the auditor independence rules.  He concluded his remarks with observations regarding the importance of independent minded audit committees as one element of a strong corporate governance structure.  The full text of his remarks may be found here.