What can be done about an Audit Extrapolation.
September 28, 2019
Internal Controls Issue: Corporate Boards may be Blind to Risks
January 19, 2020
During the recent AICPA 2019 Conference on Current SEC and PCAOB Developments on December 9, 2019, in Washington, D.C., SEC Chairman Jay Clayton commented on companies using non-GAAP metrics that accurately reflect their business operations. Clayton indicated that companies shouldn’t have a set of non-GAAP financial measures that are for the public and then a different set for how actually manage the company.
The most recent SEC Annual Report for the Division of Enforcement has highlighted the SEC’s enforcement activity in this area:
https://www.sec.gov/files/enforcement-annual-report-2019.pdf
Holding Individuals Accountable
A central pillar of our program is holding accountable individual wrongdoers. By doing so, the Commission achieves multiple goals, including specific and general deterrence and, where injunctive and other non-monetary remedies are imposed, protection of markets and investors from future misconduct by those same bad actors. Many of the Commission’s actions discussed above exemplify our focus on individual accountability, including the action against the former CEO and a former director of Nissan. Other notable examples of Fiscal Year 2019 cases include:
- Brixmor Property Group Inc. In an action filed in parallel with criminal authorities, the Commission alleged that the CEO, CFO, CAO, and Senior VP of Accounting at a publicly traded real estate investment trust fraudulently manipulated a key non-GAAP metric relied on by analysts and investors to evaluate the company’s financial performance. The Commission filed a settled action against Brixmor, and achieved partial settlements against two of the four individual defendants.
In the Matter of Brixmor Property Group, Inc. Stand-alone Admin. Proc. 34-86538 08/01/19
https://www.sec.gov/litigation/admin/2019/34-86538.pdf
The SEC has been questioning many companies though comment letters in 2019 about the use of individually tailored recognition and measurement methods and how they considered Question 100.04 of the Non-GAAP Compliance and Disclosure Interpretations which was first published in May of 2016 and most recently updated in April 2018. Some recent examples of these letters include:
- Accel Entertainment, Inc., 10/02/2019 (from SEC)
- Wageworks, Inc., 08/14/2019 (from SEC)
- Chubb Ltd, 04/29/2019 (from SEC)
If you are interested in finding out how your most recent disclosures compare to recent SEC comment letters or have any other disclosure related questions, contact Scott Wilson, MBA, CPA, CFE, at swilson@chief-financial-solutions.com or call him directly 443-325-7227.
