SEC Trends & Developments - Summer 2011 - News
- Recently Sony Corp was forced to shut down its PlayStation network when users had information stolen by hackers. As a result, the SEC has been asked to consider issuing guidance concerning the reporting and disclosure for companies that have suffered a major network attack. Such guidance would require companies to disclose if they are vulnerable to cyber attacks and disclose the details of any attack, such as the details regarding intellectual property and trade secrets that might have been stolen. In a letter addressed to SEC chairman Mary Schapiro, the group said "In light of the growing threat and the national security and economic ramifications of successful attacks against American businesses, it is essential that corporate leaders know their responsibility for managing and disclosing information security risk." The guidance requested would eliminate the current practice of determining when an incident is material, which is done by each individual company, by clarifying when an incident rises to the material level and becomes subject to disclosure.
- Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, has been issued by the SEC. This rule is the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act whistleblower provisions. This rule establishes the program that requires the SEC to pay an award to eligible whistleblowers that voluntarily provide original information regarding a violation of the federal securities laws. If that information leads to successful enforcement of a covered judicial or administrative action, or a related action, the award will be paid.
- The SEC's Office of the Chief Accountant ("OCA") has presented an approach and has solicited comments of the Condorsement Approach to incorporating IFRS into the U.S. financial reporting system. Under the Condorsement Approach, U.S. Generally Accepted Accounting Principles ("U.S. GAAP") would continue to exist and the Financial Accounting Standards Board ("FASB") and International Accounting Standards Board would work to finish their joint converge projects. After completion of the joint projects, the FASB would work to converge U.S. GAAP to IFRS over a period of time. "The Staff's discussion in this Staff Paper is not intended to suggest that the Commission has determined to incorporate IFRS," said the OCA, "or that the discussed framework is the preferred approach or would be the only possible approach." In addition, OCA stated "The focus of this Staff Paper is to outline a possible approach for incorporation of IFRS into the U.S. financial reporting system, if the Commission were to decide that incorporation of IFRS is in the best interest of U.S. investors." OCA's presentation also made clear that "This [paper] does not provide an extensive discussion of a potential timeline of incorporation."
- In a concept release the SEC questioned the role of Proxy advisory firms. In particular, the SEC was concerned about potential conflicts of interest that can arise providing servicing to public companies and to their shareholders, and about the transparency and accuracy of their results. As a result of the concept release, this fall the SEC plans to issue a proposal to address the role of these firms. In a recent speech, SEC chairman Mary Schapiro said "When we catch our breath from our Dodd-Frank responsibilities, I want to return to the issue of what we call proxy plumbing."
- The current auditors' reporting model is under review by the PCAOB. A recent concept release discusses alternatives to changing how auditor's report, and what their reports cover. It is expected that a public roundtable will occur to discuss the concept release later in 2011. The alternatives being discussed include an auditor's discussion and analysis, required and expanded use of emphasis paragraphs, auditor assurance on non-GAAP information, and clarification of language in the standard auditors' report. The goal of this review is to provide investors with information that has more transparency in the audit process and more insight into the company's financial statements and into other information outside the financial statements. The auditors' discussion and analysis would allow auditors to discuss their views on significant matters, audit risks, audit procedures and results and auditor independence. The expanded use of emphasis paragraphs could highlight significant matters in the financial statements and where in the financial statements those matters are disclosed. By requiring auditors to give assurance on non-GAAP information, additional assurance would be provided to items such as management's discussion and analysis and earnings releases. Another enhancement to the current auditor's report, the board says, could involve clarifying what an audit represents and auditor responsibilities. The final alternative on clarification of the language in the standard auditors' report considers that the report cover items such as reasonable assurance, the auditors' responsibility for fraud, the auditors' responsibility for financial statement disclosures, management's responsibility for the preparation of the financial statements, auditors' responsibility for information outside of the financial statements, and auditor independence.
SEC Trends & Developments - Summer 2011 Issue