Ensuring Integrity The 7 Annual Audit Conference

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SEC Activities in 2012 - Zicklin School of Business

Ensuring Integrity: The 7 th Annual Audit


Brian Croteau

Deputy Chief Accountant

Office of the Chief Accountant

U.S. Securities and Exchange Commission

November 29, 2012

Baruch College

The Securities and Exchange Commission, as a matter of policy,

disclaims responsibility for any private publication or statement by any

of its employees. Therefore, the views expressed today are my own, and

do not necessarily reflect the views of the Commission or the other

members of the staff of the Commission.



SEC Activities in 2012

JOBS Act and Dodd-Frank Act

PCAOB Standard Setting and Inspection Matters

SEC Broker-Dealer Rulemaking

Fair Value Measurements and Third Party Pricing


Internal Control Over Financial Reporting

Work Plan for Global Accounting Standards


SEC Activities in 2012

Selected Highlights

‣ Significant efforts and progress in the

implementation of the Dodd-Frank Act and the


‣ Commission adopted final rules to require the

exchanges to create a consolidated audit trail to

facilitate enhancements to regulators’ ability to

monitor and analyze trading activity

‣ Investment advisers registered with Commission

and began submitting information on Form PF

‣ 734 Enforcement actions, including orders to

recover more than $3 billion in penalties and


‣ Over 3,000 tips handled by the whistleblower office


in its first year

Office of the Chief Accountant

Acting Chief Accountant – Paul Beswick

Main groups in OCA

‣ Professional Practice (Audit and Independence) –

Brian Croteau

‣ Accounting – Paul Beswick

‣ International Affairs – Julie Erhardt


‣ Rulemaking, interpretive guidance and reports

‣ Oversight of standard setting

‣ Consultations


Jumpstart Our Business Startups Act

Generally seeks to support smaller businesses in

our economy and includes some provisions

relevant to auditors

‣ Provides exemption for emerging growth

companies (EGCs) from ICFR audit requirements in

SOX 404(b)

‣ Precludes application of any PCAOB rules to EGCs

that would require mandatory audit firm rotation or

require auditors to provide additional information in

the auditor’s report about the audit and the financial

statements (auditor discussion and analysis)

‣ Requires the Commission to consider the

promotion of efficiency, competition, and capital

formation when determining whether new PCAOB

rules will apply to EGCs


Dodd-Frank Act

Generally relates to the financial system and the

largest institutions and includes some provisions

relevant to auditors

‣ Provides exemption for smaller issuers from ICFR

audit requirements in SOX 404(b)

‣ Grants the PCAOB oversight of audits of brokers

and dealers registered with the SEC

‣ Directs the Commission to issue rules requiring certain

companies to disclose their use of conflict minerals if

those minerals are “necessary to the functionality or

production of a product” manufactured by those


• Final rules adopted by the Commission in August

Auditing requirements


PCAOB Standard Setting and Inspection


Audit standard setting

Global audit policy considerations

Auditors Reporting Model


‣ European Commission

‣ International Auditing and Assurance Standards

Board (IAASB)

‣ Others

PCAOB inspections

‣ Results

‣ International


Broker-Dealer Rulemaking

June 15, 2011 – Commission proposed

amendments to broker-dealer financial reporting

rules to:

‣ Update existing requirements of Rule 17a-5

‣ Facilitate the ability of the PCAOB to implement

oversight of independent public accountants of


‣ Eliminate potentially redundant requirements for

certain broker-dealers affiliated with, or dually

registered as, investment advisors

‣ Other amendments include:

• Access to audit documentation

• New Form Custody


Broker-Dealer Rulemaking

Establishment of broker-dealer accounting

support fee

PCAOB rule 4020T established an interim


‣ PCAOB’s initial progress report on the

temporary inspection program (August 2012)


Applicability of Auditor Independence

Rules to Broker-Dealer Audits

Auditors of broker-dealers are required

to be qualified and independent in

accordance with the Commission’s

auditor independence requirements in

Rule 2-01 of Regulation S-X,

Qualification of Accountants


Applicability of Auditor Independence

Rules to Broker-Dealer Audits

Examples of applicable independence


‣ Non-Audit Services – An accountant is not

independent if, at any point during the audit and

professional engagement period, the accountant

provides, among others, the following non-audit

services to an audit client:

• Bookkeeping or Other Services Related to the

Accounting Records or Financial Statements of

the Audit Client

• Management Functions

‣ Other Financial Interests in Audit Client


Applicability of Auditor Independence

Rules to Broker-Dealer Audits

Office of the Chief Accountant: Application of the

Commission’s Rules on Auditor Independence

Frequently Asked Questions

Auditors of non-issuer broker-dealers are not

subject to rules related to:

• Partner rotation requirements

• Certain partner compensation arrangements

Auditors of non-issuer broker-dealers are also

not subject to rules related to:

Audit committee administration requirements

‣ “Cooling off” period requirements


Fair Value Measurements and Third Party

Pricing Sources

When using third-party sources of fair value

information (particularly in Level 2 of the Fair

Value Hierarchy), management is still responsible


‣ Complying with GAAP, including disclosure


‣ Maintaining appropriate internal controls to

prevent or detect material misstatements related

to fair value measurements and disclosures

‣ Assessing ICFR


Fair Value Measurements and Third Party

Pricing Sources

SEC staff speech at the 2011 AICPA National

Conference on SEC and PCAOB Developments

‣ http://sec.gov/news/speech/2011/spch120511jkp.htm

SEC staff comments (Division of Corporation

Finance and Division of Investment Management)

Other developments

Importance of ongoing monitoring of changes in

trading levels in order to consider whether

changes to the pricing methodology is



Internal Control Over Financial Reporting

COSO’s Project

‣ Updated framework exposed for comment (Sept)

‣ Internal control over external financial reporting


‣ Illustrative tools for assessing effectiveness

Implementation of the updated framework

‣ Opportunity to identify ways to strengthen ICFR

‣ Consideration of SEC’s 2007 interpretative


PCAOB inspection deficiencies


Workplan For Global Accounting Standards -

Final Staff Report

Brief Update

‣ Staff published final report on the Work Plan on

July 13, 2012

• Final Staff report highlights that looking

directly to IASB is challenging

• Benefits of an endorsement mechanism

The Work Plan did not set out to answer the

threshold policy question

‣ An endorsement mechanism is possible, but

challenges remain

The Commission has yet to make any policy

decision nor has a timeline been provided

‣ Additional research and analysis


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