A panel at Nareit’s REITworks: 2020 Virtual Conference titled “Financial Disclosure: Latest Updates from SEC & PCAOB Impacting REITs & CRE” discussed updates from the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), trends in critical audit matters, and COVID-19 accounting considerations.
Wendy Gill , SVP & Chief Accounting Officer, Columbia Property Trust Inc. (NYSE: CXP), moderated the panel, which also included:
- Howard Garfield , CAO, CorePoint Lodging (NYSE: CPLG)
- Wes Kelly , Partner, PwC
- Angie Storm , Partner, KPMG LLP
Storm discussed the SEC’s COVID-19 responses, especially when it comes to disclosures.
“I really recommend you look at this document,” Storm said, referring to Corporation Finance Disclosure Guidance: Topic No. 9A. The guidance provides additional views of the Division of Corporation Finance regarding operations, liquidity, and capital resources disclosures companies should consider with respect to business and market disruptions related to COVID-19.
Kelly discussed the impact COVID-19 has had on the audit. PCAOB issued guidance in April 2020, a staff Spotlight document titled ‘COVID-19: Reminders for Audits Nearing Completion,’ to provide important reminders to auditors of issuers and broker-dealers for audits. The Spotlight highlighted the risk of assessment process, challenges in obtaining and evaluating the sufficiency and appropriateness of audit evidence, the importance of direction and supervision of less experienced team members, and modifying the nature and extent of review of audit work.
The panel concluded by discussing going concerns and the responsibilities facing both management and auditors in the wake of COVID-19, including:
Going Concerns: management’s responsibilities
· At each annual and interim reporting period, U.S. GAAP requires management to evaluate whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued when applicable)
· Required to consider conditions that are “known and reasonably knowable” at the date the financial statements are issued
· Required disclosures for management for situations where there is “substantial doubt” or “substantial doubt” has been alleviated
Going Concerns: auditor’s responsibilities
· The auditor’s evaluation of a company’s ability to continue as a going concern is an important part of an audit under PCAOB standards and federal securities law
· Consideration of certain conditions or events that, when considered in the aggregate, indicate there could be substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time
· May need to consider management’s plans for dealing with the adverse effects of the conditions and events ▪ Potential implications on the auditor’s report