Thought Leadership

Life After Regulatory Onslaught

As published in MicroCap Review Magazine



Corey Fischer, CPA

Financial reporting executives, audit committees, and independent auditors have been wrestling with a number of developments in the U.S. recently, including new accounting standards, technological impacts on financial reporting, tax reform and other regulatory developments.

Implementation of new accounting standards has been burdensome for many companies, including new standards for equity linked derivatives, credit losses, nonemployee stock compensation, the definition of a business in business combinations, and, the two most significant changes, the new revenue and leasing standards. But these are all effective now, so the accounting onslaught is over for the foreseeable future. So what is on the horizon?

Simplification Not So Simple

Effective November 5, 2018, the SEC issued its final rule that eliminates or revises a number of disclosure requirements that are redundant or outdated in light of changes in US GAAP, or the business or technological environment.

The simplification rules are 308 pages long, and actually add a new requirement to disclose interim changes in stockholders’ equity. This results in a new equity statement format to replace a single statement of changes in stockholders’ equity with up to four equity statements for interim and year to date periods for two comparable years.

Introducing Critical Audit Matters

Under the newly-revised PCAOB standard, auditors must augment their traditional audit opinion with a discussion of “critical audit matters” (CAMs), essentially matters that “kept the auditor up at night.”

A CAM is defined as any matter that is required to be communicated to the audit committee that relates to accounts or disclosures that are material to the financial statements and involve especially challenging, subjective or complex auditor judgment. Disclosure of CAMs will be effective for large accelerated filers for fiscal years ending after June 30, 2019 (and all other filers for fiscal years ending after December 15, 2020).

A CAM could include matters related to revenue recognition, management override of controls, receivables, inventories, intangibles, covenants, investment valuations, derivatives, fixed assets, lease accounting, pension accounting, expenses, reserves, and related parties, just to name a few. The PCAOB has said it expects that, in most audits, the auditor will identify at least one CAM.

Ineffective Internal Controls

In January 2019, the SEC settled charges against four public companies for failing to maintain internal control over financial reporting (ICFR) for seven to 10 consecutive annual reporting periods. According to the SEC’s orders, year after year, the four companies disclosed material weaknesses in ICFR involving certain high-risk areas of their financial statement presentation.

Each of the four companies took months, or years, to remediate their material weaknesses after being contacted by the SEC staff. The companies involved three accelerated filers and one smaller reporting company that all had audits of their ICFR.Three of these companies had clean ICFR audit reports in their most recent fiscal year, but the SEC still charged them for continually having ineffective controls in prior years.

Changes to Employee Benefit Plan Audits

A new standard for employee benefit plan audits is coming soon that primarily focuses on expanded reporting and disclosures. It follows a collaborative effort by the Department of Labor (DOL) and Auditing Standards Board (ASB), in response to weaknesses found in a number of benefit plan audits.

A new report format will replace what is currently known as a limited-scope audit. The new standard will require new procedures for engagement acceptance; audit risk assessment and response; and communications with those charged with governance.The standard is expected to be issued in the first half of 2019 and for audits of financial statements for periods ending on or after Dec. 15, 2020 (i.e. December 31, 2020 audits).


Audit Committee Responsibilities  

Both the SEC and the PCAOB continue to focus on the responsibility of the audit committee to understand financial reporting requirements fully, and to challenge senior management on major, complex decisions if necessary.

The audit committee should review all financial communications to satisfy itself that all information is presented fairly and in a transparent and consistent manner. Also, as part of their oversight of the external audit, audit committees need to ask probing questions of external auditors related to audits and any significant deficiencies or material weaknesses that were identified.


Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOB and CPAB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies.  He has more than 25 years of experience, having worked with the Big 4 accounting firms, and as an SEC reporting officer for a number of NASDAQ-listed companies.  Based in Los Angeles, he is an expert in financial reporting, SEC compliance, raising debt and equity, mergers and acquisitions and structuring accounting operations. E-mail: or 310-601-2200. Visit