SEC Chief Accountant, Wesley Bricker’s Remarks at The AICPA National Conference
Posted by Laura Anthony, Esq. on October 24, 2018
SEC Chief Accountant, Wesley Bricker’s Remarks at The AICPA National Conference- Today is a special Lawcast reporting on the SEC Chief Accountant, Wesley Bricker’s remarks to the AICPA National Conference, which was held on September 17, 2018. Although as part of every speech, and in a separate stand-alone public release recently, the SEC reminds us that the views expressed by SEC staff in speeches and statements, do not bind the SEC and do not necessarily reflect the views of the SEC as a whole, I still find it important to know what the SEC top brass and leaders are thinking and willing to publicly say. Valid precedence or not, there are studies that show that the judiciary gives weight to these statements, as does market participants.
Mr. Bricker begins by pointing out the obvious benefits of proper financial reporting and accounting standards including providing investors with confidence about a company and encouraging investment. When creating accounting standards and rules, the regulators must make sure that they provide investors, lenders, and others with information that is clear, useful, and relevant to their needs in making decisions, while considering whether the anticipated benefits of that information justify the costs of producing and using it.
In that regard, Mr. Bricker recognizes the importance of the accounting community learning and keeping informed about technological innovations including digital assets such as tokens and coins. Taking a positive stance, Bricker states that “technology can be the ally of a company’s business and financial reporting activities, not their opponent. It follows that changes in technology need not work against investors and the public capital markets.”
However, companies have an obligation to maintain appropriate books and records—regardless of whether distributed ledger technology (such as blockchain) smart contracts, and other technology-driven applications are (or are not) used. Likewise, the auditor of an issuer, broker-dealer, or investment adviser is required to determine the nature and extent of the audit procedures to perform based on the circumstances of the entity and the auditing standards applied.
Until there are changes in existing standards, accountants and auditors should rely on existing fundamentals and accounting standards, including the requirements of the federal securities laws, such as those relating to books and records, internal accounting controls, internal control over financial reporting, and custody when accounting for or auditing financial statements that include digital assets.
Companies with digital assets must ensure that their accounting staff has the knowledge and experience to be able to keep detailed and accurate books, records and accounts, and establish internal controls related to the digital assets. Importantly, since transactions using digital ledger technology can be anonymous, a company must have controls in place to ferret out related party transactions which must be specifically disclosed in financial statements, and are generally valued and accounted for differently than arm’s length transactions.
Further, the company must be able to ascertain the value of a loss contingency in the event of a regulatory investigation and/or civil claims from investors related to digital assets. This requires keeping abreast of the numerous statements and enforcement proceedings by state and federal regulators.
External auditors also have a huge responsibility where a company has digital assets and should carefully consider their obligations. Auditors should pay attention to the “tone at the top in the company, including the commitment to integrity, compliance, and competency” and the auditors own competency to “adequately identify and assess risks, design, and execute appropriate audit procedures and obtain sufficient, appropriate audit evidence.” Likewise an auditor must be able to recognize and report illegal acts. Where a company has an audit committee it has an obligation to select an auditor that can properly fulfill its duties.