SEC Chairman Mary Jo White takes the reins of the Securities and Exchange Commission at a time of unprecedented challenges and complexities. This Messenger welcomes Chairman White and provides highlights of other current events and trends that may affect boards of public companies and may warrant discussion with independent auditors in the coming months.

1. April 2013
MHMMessenger
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M AY E R H O F F M A N M C C A N N P. C . – A N I N D E P E N D E N T C PA F I R M
A publication of the Professional Standards Group
Boardroom Briefing for SEC Clients: Looking Ahead for 2013 and Beyond
SEC Chairman Mary Jo White takes the reins of the Chairman White joins a dedicated group of
Securities and Exchange Commission at a time of Commissioners and senior staff members, some
unprecedented challenges and complexities. This of whom are new in their roles and brimming with
Messenger welcomes Chairman White and provides new ideas and fresh approaches. The senior staff
highlights of other current events and trends that may members include Paul Beswick, who was named Chief
affect boards of public companies and may warrant Accountant in December 2012 and Lona Nallengara,
discussion with independent auditors in the coming who was named Acting Director of the Division of
months. Corporation Finance in December 2012, as well as
George Canellos and Andrew Ceresney, who were
1. New leadership at the SEC named co-directors of the Division of Enforcement in
April 2013. We welcome Chairman White and look
A former federal prosecutor and securities lawyer, forward to working with the staff in 2013 and beyond.
Chairman White will need to step up to a formidable
agenda of complex and controversial rule-making 2. Use of social media
initiatives that were mandated by the Dodd-Frank and
JOBS Acts and that remain works-in-process amidst A recent announcement by the SEC clarifies the
intense lobbying efforts. guidelines for use of social media outlets such as
Facebook and Twitter. The SEC’s announcement
She also faces demands for more disclosure indicates that companies can use social media outlets
requirements related to cybersecurity risks and a to announce information, and that announcement
rethinking of all the SEC’s disclosure requirements will be considered compliant with Regulation Fair
as financial reporting requirements and use of social Disclosure (Reg FD) so long as investors have been
media continue to evolve. But perhaps the most alerted about which social media will be used to
interesting test of her leadership will revolve around communicate the information.
issues related to audits, including obstacles to
inspections by US regulators of audits in China. As a reminder, the purpose of Reg FD is to ensure that
all investors have the ability to gain access to material
information at the same time. Although each case
must be evaluated on its own facts, the announcement
cautions companies about the risks of releasing
material nonpublic information on the personal social
media site of an individual corporate officer. Such
disclosure is unlikely to qualify as an acceptable
method of disclosure under the securities laws unless
our roots run deep TM
there has been advance notice to the investors that
the site may be used for this purpose.
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2. MHMMessenger
Many boards of directors and audit committees are other aspects of disclosures. Currently, the disclosures
well aware of the risks of using social media outlets in the MD&A are unaudited, while the notes to the
for dissemination of financial information. As a financial statements are covered by the independent
result, they are reviewing, improving, or establishing auditor’s opinion. A possible middle ground considered
corporate policies to ensure appropriate guidance and by the Public Company Accounting Oversight Board
enforcement mechanisms are in place and integrated (PCAOB) might involve the establishment of new
with the company’s code of corporate conduct requirements for an “auditor’s discussion and analysis.”
or business ethics policy. Consultation with your MHM is monitoring developments in this area and may
company’s auditor may be helpful in this area. issue another Messenger as this initiative progresses.
3. Rethinking SEC disclosure requirements 4. PCAOB’s proposal for a reorganization of
auditing standards
Speaking at a conference in February, SEC
Commissioner Troy Paredes spoke about “information In March 2013, the PCAOB proposed a framework for
overload.” He said there is a risk that investors will a reorganization of its audit standards. The framework
become overwhelmed or distracted and misplace their is expected to be the first step in a multi-year effort to
focus on information that is only marginally useful. He reorganize and, where needed, substantively amend
suggested that shorter, more manageable SEC filings its auditing standards for independent auditors.
might be more useful to investors and that social
media and mobile devices may allow the Commission Speaking at a public meeting on the subject, PCAOB
to “think differently” about how disclosures can be Chairman James Doty explained that the PCAOB’s
packaged and distributed to investors. He also urged a standards currently exceed 2,000 pages, and
“top-to-bottom” review of the SEC’s disclosure regime auditors of some public companies also need to use
to help empower investors make better decisions. the international auditing standards of the IAASB
(standards that amount to another 1,000 pages). One
SEC Chief Accountant Paul Beswick provided an purpose of the reorganization is to make it easier for
indication of how the SEC might proceed to overhaul audit practitioners to read and consult the PCAOB
its disclosure requirements at the same conference. standards. Another is to provide what Mr. Doty called
He said the SEC staff has heard concerns about a “crosswalk” to the preexisting or interim standards
a trend toward requiring more disclosure in the and to the more recent international standards.
financial statements of forward-looking information PCAOB member Jay Hanson added his hope that a
that previously had been reported in the Management more organized set of auditing standards will enable
Discussion and Analysis section of periodic reports filed the overseers of audits, including audit committees
with the SEC. As a result, the SEC staff is working on of public companies, to better understand the audit
a paper about “What is the dividing line?” between US process and its requirements.
GAAP and SEC reporting requirements. At the time,
Mr. Beswick predicted the paper would be released The proposed framework would include a separate
in the next couple of months, which would mean April section on the auditor’s responsibilities regarding
or May 2013 and a related disclosure roundtable is filings under Federal securities laws, including
expected in “late spring or early summer.” responsibilities for filings for securities offerings and
reviews of interim financial information. But it would
The rethinking of the SEC’s disclosure requirements is not go beyond the standards issued by the PCAOB
expected to focus on audit considerations as well as to include related information, such as the SEC’s
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3. MHMMessenger
requirements that apply to audits. Comments on the As initially proposed, the Nasdaq rule would apply
proposed framework are due by May 28, 2013. across-the-board and would not allow for exceptions.
After considering the comments, however, Nasdaq
5. Nasdaq’s proposed internal audit rule may consider carving out exceptions similar to
those permitted in the internal audit rule adopted by
The role of internal auditors is getting increased attention the New York Stock Exchange. These exemptions
too, particularly in growing companies including those include certain funds registered under the Investment
whose securities are traded on the Nasdaq Exchange. Company Act, foreign companies, and companies
In March, the Nasdaq filed a proposed rule that would that list only debt or preferred stock. Regardless of
require an internal audit function for listed companies. what happens with the Nasdaq’s proposed internal
This proposal has proven controversial. Many audit rule, audit committees of companies that do not
comment letters expressed concerns about the costs currently have internal audit functions may wish to
relative to the benefits. discuss with their independent auditors the pros and
cons of establishing one.
Designed to help ensure the needs of management
and audit committees are met, the proposed rule would For more information
require that each Nasdaq-listed company establish
and maintain an internal audit function. The role of If you would like more information about the topics
this function would be to provide management and discussed in this Boardroom Briefing, please contact
the audit committee with ongoing assessments of the Rich Howard of MHM’s Professional Standards Group
company’s risk management processes and system or your MHM service professional. You can reach Rich
of internal control. Outsourcing of the function would directly at rhoward@cbiz.com or 949-450-4402.
be permitted to third-party service providers other than
the company’s independent auditor. The proposed
effective date for companies listed on Nasdaq on or
before June 30, 2013 would be to establish an internal
audit function no later than December 31, 2013; the
proposed effective date for companies listed after
June 30, 2013 is prior to listing.
The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM service provider to further discuss the impact on your financial statements.
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