SEC Official Asks Public Companies to Focus on Key FASB Standards
Securities and Exchange Commission (“SEC”) official Michael Dusza is advising public companies to consider how the adoption of several standards from the Financial Accounting Standards Board (“FASB”) could impact their financial reporting controls. During a speech last month in Washington D.C., Dusza stressed that the accounting changes for revenue recognition, leases, and credit losses are likely to create significant challenges when public companies test internal controls during the adoption phase.
Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With Customers (Topic 606), is effective January 1, 2018 for public business entities. ASU No. 2016-02, Leases (Topic 842), will be effective in 2019, and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, goes into effect in 2020. To prepare internal controls for these standards, Dusza recommends that public companies review the guidance under Principle No. 9 of the COSO Internal Control—Integrated Framework. The principle instructs businesses to identify and examine changes that might impact their internal control systems. Also, companies should use the Internal Control Framework’s assessment to prevent future accounting errors.
Dusza noted that companies and auditors could use the new standards to address previously undetected risks in the internal controls or financial reporting systems. According to Dusza, the severity of such deficiencies must be evaluated and communicated to a company’s investors or audit committee. He also believes identifying notable risks of material misstatement under the new standards are likely to benefit organizations over time and create more effective internal controls and financial reporting processes.