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US Securities and Exchange Commission

SEC’s Top Accountant Warns Public Companies About Importance of Financial Reporting During Pandemic

Thomson Reuters Tax & Accounting  

· 6 minute read

Thomson Reuters Tax & Accounting  

· 6 minute read

By Soyoung Ho

The SEC’s top accountant warned public companies not to skimp on their efforts to provide accurate and useful financial reports to investors in light of COVID-19 difficulties.

“As Chairman Clayton said in his recent statement, we are facing an unprecedented national challenge – a challenge that has significant implications for financial reporting, our markets, and our economy more generally,” SEC Chief Accountant Sagar Teotia said in a statement on April 3, 2020. “As we face these challenging times, investors and other stakeholders need high-quality financial information more than ever.”

For capital markets to function smoothly, investors and lenders must have high-quality financial information to make informed investing and voting decisions.

But with unprecedented challenges presented by efforts to contain the COVID-19 pandemic by authorities around the world, the SEC in a series of actions in March provided public companies extra time to comply with certain rules, like when financial reports can be filed. The staff also provided several guides related to companies’ disclosure obligations. (See SEC Extends Previous Reporting Relief Amid COVID-19 Challenges, in the March 26, 2020, edition of Accounting & Compliance Alert.)

“Although markets and companies face uncertainties, we have a robust and longstanding financial reporting system in place, including the accounting, disclosure, and auditing models that will help us to address recent challenges,” Teotia said. “OCA continues to focus on investors’ need for high-quality financial information, and on our mission and priorities.” OCA is short for the SEC’s Office of the Chief Accountant.

OCA Ready to Help With Accounting Challenges

The chief accountant reminded public companies that SEC staff is available to help companies and auditors when they face complex accounting, financial reporting, independence, and auditing issues. OCA staff as well as staff in the Division of Corporation Finance (CorpFin)—which reviews filings to make sure they are compliant with disclosure rules—have been always telling companies that staff is available for consultation to resolve tricky accounting or disclosure issues.

In the public statement, Teotia said that OCA staff has been taking a proactive approach to talk to market participants, other regulators, and standard-setters on current market developments because of COVID-19.

Teotia then summarized what OCA has been doing.

On accounting, OCA has been in constant contact with the FASB, which sets accounting standards to support its efforts to address impacts of COVID-19. The FASB on April 8 is holding a public meeting to that end. (See FASB to Address Urgent Reporting Issues Sparked by Coronavirus on April 8 in the April 3, 2020, edition of ACA.)

With the situation remaining fluid and uncertain with COVID-19, companies are faced with making significant assumptions, come up with estimates of areas that may or may not happen in the future. Financial reporting has always been riddled with assumptions and estimates, but COVID-19 has thrown yet another element into that uncertainty.

Among several accounting areas that require significant judgments are: fair value and impairment; leases; and going concern.

“As we have stated for a number of years, OCA has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective,” Teotia said. “We stress the importance of required disclosures of judgments and estimates in these and other areas.”


As the economy ground to a halt because of restricted movements and gatherings in order to stop the spread of the highly contagious coronavirus, Teotia said that the staff is also working with market participants regarding the $2 trillion stimulus packaged signed into law on March 27, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It gave large banks the option to temporarily defer or suspend accounting rules related to credit loss or troubled debt modifications.

Teotia said that his staff has been getting inquiries from companies and auditors about the specifics of the provisions in the CARES Act.

“For those entities that are eligible for, and elect to apply, either of Sections 4013 or 4014 of the CARES Act, the staff would not object to the conclusion that this is in accordance with GAAP for the periods for which such elections are available,” Teotia said.

Working With Audit Regulator

OCA has also been actively engaged with the PCAOB—the audit regulatory board—to address COVID-19 issues, and Teotia said the SEC supports the board’s efforts.

The PCAOB on April 2 issued staff guidance that reminds what accountants need to do for audits nearing completion in light of COVID-19.

The board also gave a 45-day relief period from audit inspections. (See PCAOB Grants Temporary Relief From Audit Firm Inspections Amid COVID-19 Crisis in the March 25, 2020, edition of ACA.)

“OCA also remains actively focused on independence matters in these unprecedented times,” Teotia said. “Auditor independence is foundational to the credibility of the financial statements.”

Teotia said that staff is available for consultation on independence matters as well.

In addition, because financial markets are global, he said that OCA is engaged with regulators and standard-setters worldwide, including with the IASB and the Monitoring Group.

IASB writes IFRS, and the Monitoring Group is a panel of international financial regulators whose mission is to enhance public company audit quality.

Chinese Companies Trading on U.S. Markets

Moreover, because the PCAOB for more than a decade has not been able to reach an agreement with China to inspect China-based accounting firms whose audit clients trade on U.S. stock markets, the SEC and the PCAOB have been meeting with Big Four firms concerning audit quality of Chinese companies late last year and early this year. (See SEC Chairman Clayton, PCAOB Chairman Duhnke Discuss Auditing Challenges in China With Big Four Firms in the November 5, 2019, edition of ACA.)

“Just last week, we conducted two additional meetings with two different accounting firms to discuss these matters as well as discuss the impact of COVID-19 on companies and audits,” Teotia said. “We expect to continue these very important discussions in 2020.”

This also comes as U.S. regulators have been concerned about accounting fraud of Chinese companies for several years.

Most recently, as massive accounting fraud came to light at Luckin Coffee Inc.,—a Chinese coffee chain that competes with Starbucks Corp.—its stock has suffered a steep loss, leaving its American investors high and dry.

The SEC oversees the PCAOB and the FASB.


This article originally appeared in the April 6, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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