Changing Accounting Firms? New SEC Disclosure Rules Apply!
You may be interested in learning about the updated compliance and disclosure requirements SEC registered companies are now required to make when changing principal accounting firms if you are a CFO, Controller, or member of management at a SEC registered company. Additionally, if you are a SEC securities attorney, or own stock in a publicly traded company, then it might interest you to know the new regulations specifically require publicly held companies to disclose why the change was made, and what factors were involved in the decision.
Key Point: SEC regulations NOW REQUIRE companies changing accounting firms to disclose if the change resulted because of a disagreement between management and the accounting firm. This new criteria for reportable events is designed to increase shareholder and investor transparency and was not previously required.
Regulation S-K & Form 8-K Changes
The requirements of the Compliance and Disclosure Interpretations (CDI) relate to Regulation S-K and Form 8-K and now include additional disclosures related to circumstances surrounding a change in the company’s principal accounting firm. When a change is made, the company is required to disclose any disagreements with the principal accountant, or reportable events that have occurred during the prior two fiscal years. In addition, companies must also disclose any reportable events from the end of the most recent fiscal period through the interim period when the new accountant began providing services.
Additional Disclosure Requirements:
Upon changing principal accounting firms, companies will also be required to disclose additional information if any of the following situations have occurred:
- Internal Control Deficiencies. Registrants are required to disclose information related to their internal controls assessments when changing principal accounting firms ONLY if the departing principal accounting firm issued an adverse opinion in the last two fiscal years on the internal control structure. In addition, a disclosure is required if the principal accounting firm advised management that a sufficient internal control structure did not exist, even if the situation has been resolved.
- Going Concern Issuance. A reportable event occurs when the company’s principal accountant issued an audit report in the last two fiscal years containing a section regarding the company’s ability to continue operations (going concern).
- Accounting Firm Relationships. Disclosure is required when a company engages a new principal accounting firm that is related in some way to the former principal accounting firm. An example of such a relationship would be when two separately PCAOB registered CPA firms are corporate affiliates or members of the same accounting network.
- Revocation of PCAOB Registration. Disclosure is required if a registrant’s principal accounting firm resigns, declines to continue, or is dismissed because their PCAOB registration has been revoked. The disclosure is required to provide the public with information on why the firm was dismissed or no longer considered PCAOB worthy.
- Accounting Firm Merger/Acquisition. Disclosure may be required when a company’s principal accounting firm merges or is acquired by another certified public accounting firm or business consulting firm.
To learn how these new regulations will affect your SEC disclosure requirements, please contact Craig Podradchik, CPA at 561.367.1040 or email Craig at firstname.lastname@example.org.