Securities and Exchange Commission:

Reviews of Accounting Matters Related to Public Filings

GAO-01-718: Published: Jun 14, 2001. Publicly Released: Jun 14, 2001.

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This report reviews the Securities and Exchange Commission's (SEC) resolution of accounting issues submitted by companies that have or are contemplating publicly traded securities. Companies are required by law to register their securities with SEC by filing a registration statement. This statement must contain financial and other information on the securities and the issuer. SEC's Office of the Chief Accountant (OCA) is responsible for providing guidance to companies to ensure that they comply with the reporting requirements of the law. Generally, registrants submit issues to OCA for which there is no authoritative guidance. These issues tend to involve unusual, complex, or innovative transactions. Some of the accounting issues frequently reviewed include business mergers and issues surrounding revenue recognition and financial instruments. Representatives of registrants and the accounting profession have had both positive and negative experiences with SEC's handling of accounting issues. Several representatives expressed concerns over the transparency of SEC's decision making process and SEC's use of accounting sources outside of generally accepted accounting procedures.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The SEC has implemented procedures to improve the availability of information to registrants regarding its process for deciding on accounting issues. Current guidance for consulting on accounting matters with the Office of the Chief Accountant (OCA) is now available on the SEC web page. The SEC also has discussed OCA's process for deciding on accounting issues, as well as how to access this guidance and related contact information, at national conferences. The SEC plans to continually update its process based on input received from the accounting profession, registrants, and other affected parties.

    Recommendation: Due to the common concerns expressed by representatives of registrants and the accounting profession and SEC's recognition that additional information would be beneficial, the Chairman of SEC should direct the Chief Accountant to implement procedures to improve the availability of information to registrants regarding OCA's process for deciding on accounting issues. Such procedures would include expanding the protocols or issuing additional public information to explain SEC's current policies and procedures for handling registrant's matters, including (1) general communications to registrants and auditors about the status of the reviews, (2) assignment of accounting issues to SEC staff members, (3) how SEC conducts its consultations with other accounting firms and the Financial Accounting Standards Board, and how the results of such consultations are considered in its decisions, (4) SEC's approval process for determining when registrant restatements are necessary, (5) coordination between the Division of Corporate Finance and OCA, and (6) when decisions are considered to be final.

    Agency Affected: United States Securities and Exchange Commission

  2. Status: Closed - Implemented

    Comments: The SEC meets regularly with representatives from the accounting profession and registrants on many issues pertaining to the accounting profession, including on how best to disseminate information on rules and interpretive guidance. SEC continually updates its web page and conference topics based on this input. Its current guidance for consulting on accounting matters, which is available on the SEC web page, reflects input received from the accounting profession as well as registrants.

    Recommendation: The Chairman of SEC should direct the Chief Accountant to meet with representatives from the accounting profession and registrants to determine how best to disseminate information on rules and interpretive guidance.

    Agency Affected: United States Securities and Exchange Commission

  3. Status: Closed - Implemented

    Comments: The SEC continues to meet regularly with representatives from the accounting profession and registrants on many issues pertaining to the accounting profession. Among the many topics discussed is suggestions for improving communication, such as the reasons for the SEC's decisions on complex and unusual accounting issues, to the profession, registrants, and other affected parties. Much of this communication takes place at public forums such as at national conferences.

    Recommendation: The Chairman of SEC should direct the Chief Accountant to meet with representatives from the accounting profession and registrants to determine how SEC could provide additional written information on the reasons for its decisions, especially when they involve complex and unusual accounting issues.

    Agency Affected: United States Securities and Exchange Commission

 

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