SEC Accounting Chief Expects 'Significant' COVID Challenges

By Al Barbarino
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Law360 (April 3, 2020, 10:13 PM EDT) -- The U.S. Securities and Exchange Commission's top accountant acknowledged Friday that accounting firms will face increasing challenges in crafting judgments and estimates amid the coronavirus pandemic, while stressing the importance of required disclosures.

SEC chief accountant Sagar Teotia pointed to a long list of accounting issues, from the adoption of new accounting standards to income taxes, that will require firms to carefully assess and report on critical judgments and estimates.

"We recognize that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates," Teotia said. "Certain judgments and estimates can be challenging in an environment of uncertainty."

Additional areas that may require special attention include fair value and impairment considerations; leases; debt modifications or restructurings; hedging; revenue recognition; going concern; and subsequent events, Teotia said.

"We stress the importance of required disclosures of judgments and estimates in these and other areas," he said.

Teotia noted that the Office of the Chief Accountant has "consistently not objected to well-reasoned judgments" for years and that this would continue.

For example, at the American Institute of Certified Public Accountants National Conference on Banks & Savings Institutions in September, he stressed that forming "well-reasoned judgments" involved "a lot of effort," words that have new meaning amid the COVID-19 pandemic.

As part of a broader statement, Teotia noted that the agency is working closely with accounting firms, preparers, auditors and other companies to ensure continued "high-quality" reporting.

He added that his office is working hand in hand with agencies including the Financial Accounting Standards Board and the Public Company Accounting Oversight Board to address the ongoing impacts of the virus.

"Although markets and companies face uncertainties, we have a robust and long-standing financial reporting system in place, including the accounting, disclosure, and auditing models that will help us to address recent challenges," Teotia said.

He also nodded to international organizations like the International Accounting Standards Board and International Organization of Securities Commissions as crucial to maintaining the integrity of global financial reporting standards.

"Our financial markets are global, so international accounting and audit-related standards also are of paramount importance to the strength of the financial reporting system and global capital markets," Teotia said.

The IOSCO on Friday released a statement regarding government-backed COVID-19-related regulatory relief measures aimed at increasing liquidity for financial institutions, urging banks and other institutions issuing loans or debt securities to evaluate their impacts on credit risk.

"Issuers should include robust disclosures of material information that can provide much needed transparency to users of financial statements," the IOSCO said.

Piggybacking off a March 24 statement from SEC Chairman Jay Clayton highlighting the need for a collective response to the pandemic from government agencies, financial institutions and all other industries, Teotia urged solidarity among the OCA and firms involved with financial reporting.

"We in OCA urge all participants in the financial reporting system to continue to work together to provide investors with the high-quality financial information they need to make decisions amidst uncertainty," he said.

--Editing by Jill Coffey.


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