SEC, PCAOB Discuss Coronavirus Impact with Big Four Audit Firms

During discussions over the past two weeks with Big Four audit firms, SEC and PCAOB officials addressed the exposure of U.S.-listed companies to the effects of the ongoing coronavirus (Covid-19) outbreak “and the impact that exposure could have on financial disclosures and audit quality,” the agencies said in a joint February 19 statement. The statement comes weeks after SEC Chairman Jay Clayton asked commission staff to monitor and possibly provide guidance to market participants on coronavirus-related disclosures. “This remains a dynamic situation where the effects on any particular company may be difficult to assess or predict, because actual effects may depend on factors beyond the control and knowledge of issuers,” SEC and PCAOB officials said in the statement. “However, how issuers plan and respond to the events as they unfold can be material to an investment decision, and we urge issuers to work with their audit committees and auditors to ensure that their financial reporting, auditing, and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.”

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Report: Debt Figures in Six Industries Changed Starkly after Lease Accounting

Companies in the financial institutions, healthcare, restaurants, energy, retail, and manufacturing sectors saw their balance sheet liabilities surge after adopting FASB’s new lease accounting rules, according to LeaseQuery, an Atlanta-based accounting technology firm. The firm’s analysis of more than 400 companies’ balance sheets before and after the effective date revealed that implementation of the new leases standard led to average balance sheet lease liability increases of 1,475%. “The changes to the balance sheet are definitely stark,” LeaseQuery Founder and CEO George Azih said on February 20. “If companies aren’t educating their stakeholders about the change to their liabilities snapshot, then it will look like they have significantly more debt year over year. The end goal is transparency, but without communication there will be confusion.” FASB issued Accounting Standards Codification (ASC) Topic 842, “Leases,” in 2016 to increase transparency by requiring companies to record all long-term lease contracts on balance sheets. The rules took effect in 2019 for public companies; private companies must adopt the changes in 2021.


GASB Proposes Revisions to Concepts for Financial Statement Note Disclosures

Accountants and auditors can now weigh in on a GASB proposal that would revise the concepts the board uses to develop note disclosures to financial statements. GASB has proposed guidelines it would follow to revise existing disclosures or write new ones for governmental entities. The proposal elaborates on the types of information that are essential and therefore should be disclosed in notes, as well as those that are not appropriate and therefore should be left out. The proposed changes would be meaningful to bond analysts and other financial statement users, many of whom look at note disclosures when assessing a government’s financial health. “The evidence supporting the determination of whether information is essential should be applied to individual information items,” the guidance states. “That is, each item disclosed should possess one of the characteristics of essentiality. The use of professional judgment may be necessary for determining whether an item of information is or would be utilized by users in making decisions or assessing accountability.”