SEC Commissioner Kara M. Stein delivered remarks at the Institute of Chartered Accountants in England and Wales (“ICAEW”). She expressed her belief in “certain opportunities in this data-driven world for accountants to lead and provide new approaches to the traditional disclosure space, including by enhancing financial reporting overall, by rethinking certain aspects of audits and by providing investors transparent, straight-forward information about the stability of a corporation.” She also emphasized the existence of “new opportunities for accountants to help firms protect themselves, and thus investors, by understanding new technology and its uses in the cybersecurity world.”
Commissioner Stein described the following “opportunities for accessible, transparent and reliable data”:
- Gaps in Financial Reporting: Commissioner Stein said that existing accounting standards “provide little information about a company’s intellectual assets or its sustainability” and “need to evolve to meet the needs of the investors in the digital era.”
- Accounting Standards in an Era of Borderless Business: Commissioner Stein called on companies to (i) use common taxonomies to provide up-to-date, accessible, and transparent information to investors and (ii) “reimagine how the delivery of information could change in the digital age.”
- Structured Data: Commissioner Stein stated that “technology can enhance both the delivery and usability of financial reports” and called on the ICAEW to provide feedback on the unstructured eXtensible Business Reporting Language (“XBRL”) reports required of companies in the UK.
- Audits: Commissioner Stein asked auditors to provide greater clarity and accessibility during the audit process to investors, specifically regarding the process of reaching materiality.
- Going Concern: Commissioner Stein urged accountants and auditors to provide greater transparency in viability assessments and early warnings to investors instead of the current “binary” methodology behind current disclosures.
- Cybersecurity: Commissioner Stein stated her belief that “accountants, with their experience integrating data, can play a leadership role in helping us address the risks of cybersecurity.”
- Compliance Culture: Commissioner Stein stressed the relationship between accounting and “compliance culture” and called on auditors and accountants to “provide leadership” in preventing “unethical behavior.”
Commissioner Stein concluded by saying that “accountants have a unique role to play in our capital markets,” which comes with the “responsibility to move forward with strategies to help businesses, investors, and regulators in an increasingly digitally disrupted world.”
Lofchie Comment: Commissioner Stein’s remarks are certainly well intended, but it is unclear how one gets from here to there with, or even that there is a path to, many of her expressed goals. One example: even if their conclusions proved valuable, it is not obvious how accountants would make determinations regarding the sustainability of intellectual property, how they would develop the expertise to do so in an objective fashion, or who would pay them to make such determinations.