In a recent statement,[1] Acting Chief Accountant Paul Munter highlighted a number of important financial reporting considerations for SPACs.[2] Among other things, that statement highlighted challenges associated with the accounting for complex financial instruments that may be common
accounting
SEC’s Acting Chief Accountant Discusses Reporting and Auditing Issues for Companies Merging with SPACs
In recent years, we have seen significant market developments and innovation in our capital markets, with a variety of structures being utilized to raise capital and facilitate taking private companies public.[1]
The U.S. capital markets are often described as
How Scrutinizing Honest Managers Encourages Earnings Management
Research in finance and accounting consistently documents that a significant number of managers overstate reported earnings when true earnings miss a benchmark [1]. Managers face strong incentives to meet and beat important earnings thresholds, such as the analyst consensus forecast …
Financial Regulators Offer Update on Audit Quality in Emerging Markets
Over the past several years, the exposure of U.S. investors and our capital markets to companies with significant operations in emerging markets, including China, has increased.[1] This increased exposure carries with it a number of significant risks and challenges,
How Managers’ Ability to Gather Information Can Affect the Value of Conservative Accounting
Academics and practitioners, including lawyers, emphasize the importance of conservative accounting to lenders and corporate boards, allowing them to intervene and take corrective actions at an early stage. However, conservative accounting may also increase the risk of false alarms and …
Accounting and Convergence in Corporate Governance
Convergence in corporate governance – the adoption by various countries of similar governance laws and practices – and whether it is even occurring have been a hot topic of debate over the past 20 years, particularly in the legal and …
SEC Chief Accountant on Importance of High-Quality Financial Reporting in Light of Covid-19
Introducing Machine Learning to Corporate Fraud Detection
Accounting fraud is a worldwide problem with potentially serious consequences, but it is often detected after the damage has been done. Hence, efficient and effective methods of detecting corporate accounting fraud would offer significant value to regulators, auditors, and investors.…
Does State Sponsor of Terrorism Disclosure Limit SEC Financial Reporting Oversight?
The Securities and Exchange Commission (SEC) regularly reviews financial filings to ensure compliance with accounting standards and other disclosure requirements. The SEC review team analyzes firm’s financial filings and asks questions (in a comment letter) about perceived deficiencies. A comment …
Financial Regulators Warn Over Chinese Audit Quality Amid Coronavirus Outbreak
In November 2019, we met with senior representatives of the four largest U.S. audit firms, including certain of their network representatives, to discuss audit quality across their global networks and certain of the challenges faced in auditing public companies with
Do Firms Conceal Material Misstatements by Reporting Revisions Rather than Restatements?
Disclosure of financial reporting errors is vital to maintaining investors’ trust in the capital markets. Yet, in recent years the number of misstatements corrected in restatements of financial reports has declined dramatically, and misstatements are now more likely to be …
Do Managers Bias Earnings Forecasts in Response to Current Earnings Surprises?
Each quarter, managers provide a summary of their firm’s accounting performance – a disclosure known as a quarterly earnings announcement. Earnings announcements attract significant attention from investors and media outlets because, if earnings are different than market expectations, stock price …
The Imperative for Blockchain Accounting
For hundreds of years, the basic flowchart of accounting information has been the same. A firm records its own transactions, maintains a record of those transactions, and reports those transactions (Soll, 2014, xiv). Trends in technology make it inevitable that …
SEC Chief Accountant Talks the Future of Financial Reporting
I’m grateful for the opportunity to visit Baruch College’s Zicklin School of Business and speak at the annual financial reporting conference for the fourth time. Many students who were starting their collegiate work here when I first spoke at this
Opening the Black Box of Companies’ Capital Investment Process
In spite of intensive academic research on capital expenditure efficiency, how firms make investment decisions remains largely a black box. We analyze that process by dividing it into two stages: budgeting of capital expenditures (CapEx) and execution of the budget. …
Sullivan & Cromwell Discusses Key Considerations for Annual SEC Filings
As issuers prepare their Form 10‑K and 20‑F filings for fiscal year 2018, they should consider the guidance provided in some recent speeches from officials of the Securities and Exchange Commission (“SEC”), which highlight a number of considerations relating to …
The Operating Returns to Acquired Intangible Assets
Accounting rule makers have long debated whether companies should recognize intangible assets on their balance sheets. At the heart of this debate is whether recognized values can predict future income and cash flows, or whether the high degree of measurement …
Do Investors Care Who Did the Audit?
In 2008, the U.S. Department of the Treasury’s Advisory Committee on the Auditing Profession called for a “standard-setting initiative to consider mandating the engagement partner’s signature on the auditor’s report” as a way to increase audit transparency.[1] The Public …
The Revolving Door between the PCAOB and Large Audit Firms
In a recent study, we examine the flow of workers between the Public Company Accounting Oversight Board (PCAOB) and large U.S. audit firms. The PCAOB, created by the Sarbanes-Oxley Act of 2002, oversees the audits of public companies by, among …
How Corporate Governance Affects Mimicking Peers’ Financial Decisions
Traditional explanations for why companies choose certain financial policies focus on firm-specific factors. For instance, all else being equal, firms with higher tax rates are likely to favor debt financing over equity financing, given the tax advantages of debt. However, …