At last week’s meeting of the SEC’s Investor Advisory Committee, the Committee members held a Q&A session with SEC Chair Jay Clayton, followed by a discussion of environmental, social and governance disclosure, where the main question appeared to be whether to recommend that ESG disclosure be required through regulation, continued as voluntary disclosure but under a particular framework advocated by the SEC or continued only to the extent of private ordering as is currently the case.
Among the points addressed in the Q&A was a potential government shutdown. Clayton said that the SEC was planning for a possible shutdown, and that, as in previous shutdowns, he expected the SEC would be able to continue its operations for a number of days post-shutdown.
CAQ discusses lessons learned from “dry runs” on critical audit matters and related questions for audit committees
As you may recall, auditors of large accelerated filers will be required to report on CAMs—critical audit matters—in their auditor’s reports for fiscal years ending on or after June 30, 2019 and in auditor’s reports for all other companies (except EGCs) to which the requirements apply for fiscal years ending on or after December 15, 2020. (See this PubCo post.) As SEC Commissioner Kara Stein observed in her statement on approval of the new rule, the new “standard marks the first significant change to the auditor’s report in more than 70 years.” Because the selection of and disclosure regarding CAMs will certainly present a challenge for both auditors and audit committees, auditors have been taking steps to prepare for the coming change, including conducting “dry runs” to get a better handle on how the new CAM disclosures will look and how the process will affect financial reporting. To provide some lessons learned from these early dry runs and enhance the understanding of audit committees, auditors and other participants in the process, the Center for Audit Quality has published Critical Audit Matters: Lessons Learned, Questions to Consider, and an Illustrative Example.
As issues of corporate social responsibility continue to gain ground, will the issue of gun safety become more prominent this proxy season?
A lot has been written about institutional investors’ turn toward issues of corporate social responsibility. One CSR topic that has received a lot of attention in the last few years has been firearms safety. In this post, published last week on The Harvard Law School Forum on Corporate Governance and Financial Regulation, a coalition of investors, including CalPERS, CalSTRS, Rockefeller Asset management and State Street Global Advisors, has developed The Responsible Civilian Firearms Industry Principles, intended to encourage companies involved in the manufacture, distribution, sale and enforcement of regulation of the firearms industry to take action in support of the responsible use of firearms. According to the post, in asserting its “role as investors,” the group identifies “expectations for the firearms industry that will reduce risks and improve the safety of civil society at large. Further, we commit to monitoring progress by companies over time and engaging with them regularly on this issue, especially in support of enterprises that champion adoption of responsible practices….We call on companies within the civilian firearms industry to publicly demonstrate and publish their compliance with each of these principles, failing which, we will consider using all tools available to us as investors to mitigate these risks.”
A number of members of the SEC accounting staff addressed the 2018 AICPA Conference on Current SEC and PCAOB Developments. Some of the remarks provided helpful guidance for evaluating internal control over financial reporting.
In a speech given yesterday at Columbia University, SEC Chair Jay Clayton reviewed the SEC’s regulatory achievements over the past year, metaphorically slapping the SEC and the staff on the back for a job well done in accomplishing 88% of the items identified on the SEC’s near-term agenda for fiscal 2018. Of particular interest, however, was his discussion of the some of the priority items on the 2019 agenda. In closing, Clayton hammered again at three risk areas that the SEC is currently monitoring—yes, those three. Clearly, the signal is that companies should consider these risks.
In this article in the WSJ and this article in the New Yorker, the authors discuss the challenges companies encounter when they try to make long-term investment decisions in the face of short-term market pressures: the debate between short-term and long-term thinking on Wall Street “is a key concern for chief executives trying to justify major capital investments that can take years to pay off. Long-range strategies can be hard to pull off in an era when Wall Street is fixated on three-month reporting periods.” Should companies try to please long-term investors or investors who are “playing the quarterly game?” What about hedge-fund activists that threaten to force the company to adopt a short-term perspective?
The SEC has posted this announcement regarding the closure of the SEC and the EDGAR system on Wednesday, December 5, 2018, in observance of a national day of mourning for former President George H.W. Bush.