SEC Interim Chief Accountant Wesley R. Bricker outlined ways in which auditors, and others responsible for financial reporting, can “reinforce the reliability and credibility of financial reporting for investors” under the new FASB credit loss standard. In remarks before the AICPA National Conference on Banks & Savings Institutions, Mr. Bricker addressed:
- the FASB’s recent completion of its multi-year standard setting process for credit losses, which requires earlier recognition of credit losses on many loans, securities and other financial assets;
- existing SEC rule staff guidance for maintaining books and records for credit losses under current Generally Accepted Accounting Principle requirements, including continued focus on internal control over financial reporting; and
- the importance of coordination among all stakeholders in the transition and implementation activities relating to the new credit loss standard.
Mr. Bricker emphasized that “the issuance of the new credit loss standard represents a significant enhancement in the quality of financial reporting by providing financial statement users with more decision-useful information about the expected credit losses related to many financial assets.” He highlighted that:
[C]ompanies will be required to immediately recognize expected losses instead of deferring losses until incurred, which should result in more timely reporting of losses to investors. . . .
Mr. Bricker is part of the SEC Office of the Chief Accountant which maintains oversight over the Financial Accounting Standards Board and the Public Company Accounting Oversight Board.
Lofchie Comment: Mr. Bricker’s observations raise a question as to whether “earlier recognition” of losses may bring the SEC into conflict with the banking regulators, who may have their own views as to when a loss should be recognized.