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SECs Wesley Bricker sees management accountants as 'expert historians', weighs in on revamped PCAOB

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SECs Wesley Bricker sees management accountants as 'expert historians', weighs in on revamped PCAOB

Bricker also discussed progress he is seeing with the revenue recognition and lease accounting standards

Tuesday, June 19, 2018
By Michael Cohn for

Wesley Bricker, chief accountant at the Securities and Exchange Commission’s Office of the Chief Accountant, told attendees at the Institute of Management Accountants’ annual conference in Indianapolis on Tuesday about the vital role he sees them playing in financial reporting.

“As management accountants, your work is vital to the financial reporting process,” he said. “You safeguard a company’s integrity when you make well-considered and adequately supported judgments and decisions. As CFOs, controllers, budget analysts, treasurers, and other management accountants, you help drive the information that is ultimately included in many shareholder and creditor communications. These communications, when made with appropriate care and candor, build public trust and help sustain the ability of businesses to raise the capital they need to grow and compete.”

He explained how management accountants can be seen as historians for their organizations in a way. “Accounting helps others understand the past so that users of accounting information can better understand present circumstances and future possibilities,” said Bricker. “Management accountants are expert historians, in a sense. You provide the critical ‘eyewitness’ account of events and evidence needed to keep and maintain books and records in accordance with the federal securities laws. In accounting and society, we all expect history to be based on evidence and prepared with discipline and diligence so that the historical narrative is reliable.”

Bricker pointed out how the first written records of history, dating back more than 5,000 years ago in Egypt and ancient Sumer, looked like accounts, with lists of property, cattle and wheat.

Fast forward to the present day, when accountants are dealing with new technologies like blockchain, cryptocurrency and distributed ledger systems. Bricker advised accountants to stay on top of such technology, referring approvingly to the IMA’s newly enhanced Management Accounting Competency Framework. But he also recommended that despite innovations like distributed ledger technology, in which transactions are available online, the SEC still expects accountants to maintain their company’s books and records.

“It is essential to keep in mind that innovations in technology can be the ally of a company’s financial reporting activities, not their opponent,” he said. “Accordingly, changes in technology need not work against the model for financial reporting to investors in the public capital markets. For example, even with the advent of innovations in technology, and in particular distributed ledger technology, management accountants should maintain appropriate books and records—regardless of whether distributed ledger technology, smart contracts, and other technology-driven applications are used or not. Likewise, the auditor of an issuer should determine the nature and extent of the audit procedures to perform based on the circumstances of the company and the auditing standards applied. In addition to seeing the innovations in distributed ledger technology and digital assets, each of us needs to take what is learned and then act appropriately within the parameters of the existing internal control and financial reporting requirements of the federal securities laws. Distributed ledger technology and digital assets, despite their exciting possibilities for financial recordkeeping, do not alter this fundamental responsibility.”

PCAOB changes

After his speech, Bricker took questions from former IMA chairman Marc Palker, as well as members of the audience and the press. Accounting Today asked him about the Public Company Accounting Oversight Board, which this year has seen changes in its chairman and all of its board members, along with the departures of other top officials of long standing with the PCAOB (see PCAOB shakeup continues with departure of chief auditor).

“I’ve been nothing but consistently supportive of the PCAOB, together with [SEC] Chairman [Jay] Clayton,” he said. “The work of the PCAOB is vital, so as Chair Clayton said we had an opportunity where 80 percent of the board was turning over to assemble a portfolio of skills that collectively at the board level would enable the PCAOB to even further advance its mission, and that was an important set of decisions for the Commission to make in selecting individuals that cover every phase of financial reporting because every phase of financial reporting can impact the quality of audits. That’s where we are. We have the appropriate robust expectations for the PCAOB’s performance to be entirely consistent with their mission.”

He doesn’t expect the PCAOB’s recent survey about its future agenda to cause the PCAOB to retreat on its standards (see PCAOB’s new board looks for feedback on future strategy). “I can’t speak for the board, but their direction is specified in the statute,” said Bricker, referring to the Sarbanes-Oxley Act. “I don’t anticipate that Congress will change their statutory mission, nor would I advocate for that.”

PCAOB chairman William Duhnke recently spoke about possibly changing how the board conducts inspections of firms. “At the highest level, there’s the statutory description of its mission,” said Bricker. “Bill Duhnke as chair has publicly supported that mission. I think that’s entirely appropriate. I’ve supported it. Jay Clayton has supported it. Then you get to the question of how do you best achieve that? And that’s the decision of the PCAOB board. How do we best achieve our mission? And as Bill Duhnke said in his speech at the University of Kansas probably four weeks ago, they’ve engaged with audit regulators from around the world. He cited two in his speech, the Netherlands and the U.K. They’ve had the survey. They’re listening for the best ideas about how they achieve their statutory mission. That’s what any good organization that’s mission focused needs to do, and I support the board in their mode of listening, and then on the basis of the information they’ve collected, evaluate and decide their priorities going forward. But that’s not a change in their statutory mission.”

Accounting standards

Bricker also discussed the relative progress he is seeing among companies with the revenue recognition and lease accounting standards. “At a comparable point in the implementation cycle, they seem to be further behind at a comparable point in leasing,” he said. “Revenue has now been implemented, as of the first quarter. We’re through that implementation cycle for public companies, and we’ll take stock of the quality of implementation. We’ll take stock of the leasing discussion as we proceed through the year.”

“On the leasing standard, a variety of analytics firms have done surveys about progress of implementation,” he pointed out. “Progress is occurring. If you look at the implementation curve for revenue and you compare that to where we are on leases, I would say leases are ahead of where we were on revenue, so I take that as a positive sign. But we still have a significant amount of work to do. One of the questions that tends to come up is should I switch to a new software package in connection with applying the new standard? That’s an important discussion. In making that decision, I would come back to the importance of spending time to make sure that the software package will give you the accounting that you need, and whether you can incorporate the changeover in terms of the new software platform within the cycle in order to land with reporting of the new standard, recording journal entries that you need in the first quarter of 2019. That’s a management decision, but I think there’s robust dialogue. I remain focused on the quality of implementation, the quality of internal controls. In terms of the accounting interpretation questions, I think those have been resolved at this point. We remain open to any new issues that might be raised. We’re well poised to address them, but the interpretive questions I think have been resolved.

Fiduciary rule

Bricker was also asked about what he thinks of the SEC taking up the fiduciary rule for financial advisors now that the Department of Labor has dropped it. “We’ve had a proposal on that, the so-called ‘best interest’ proposal, combined with disclosure to customers, so-called ‘CRS reporting,’” he said. “There’s been a lot of I think good debate, good thinking. What Chair Clayton said was there has been a lot of internal discussion and formulation and challenge and so forth. It’s time to move it outside of the four walls so we can hear from investors and market participants to better hone our thinking. That’s where we are. It’s an open comment period so we won’t speculate about a commission decision, but it’s an important, open proposal currently.”
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