How does the Securities and Exchange Commission (SEC) go about early identification of potential securities law violations involving financial reporting? In this video, hear from the SEC’s Margaret McGuire, Senior Counsel to the Director of Enforcement and Chief of the SEC’s Financial Reporting and Audit (FRAud) Group. McGuire discusses the objectives of the FRAud group, its extensive use of technology, and how cooperation, self-remediation, and self-reporting are key tenets of the SEC’s enforcement program.
Washington, DC – Improved accounting policies and internal controls are key for stemming fraud and reducing the number of financial restatements, according to a new report from the Anti-Fraud Collaboration. The report, Addressing Challenges for Highly Subjective and Complex Accounting Areas, compiles leading-practice recommendations from dozens of company executives, corporate directors, auditors, and regulators who attended two 2016 workshops to discuss ways to help deter fraud and enhance financial reporting.
“Companies are sharing leading practices and voluntarily working with regulators to help deter and detect financial reporting fraud,” said Cindy Fornelli, executive director of the Center for Audit Quality (CAQ), on behalf of the Anti-Fraud Collaboration. “The Anti-Fraud Collaboration is pleased to present these recommendations to help companies improve their accounting policies and system of internal controls. Investors, our capital markets, and public companies all win when we work together to combat fraud.”
The Anti-Fraud Collaboration held workshops in New York and San Francisco that brought together members of the financial reporting supply chain, including regulators, audit committee members, financial executives, internal auditors, and external auditors.
The workshops explored issues that were identified in an analysis of enforcement actions in which the U.S. Securities and Exchange Commission (SEC) took an action against an issuer or individual because of a securities violation and asserted that there were serious issues with the companies’ internal controls. The workshops also examined case studies as a catalyst for the discussions.
The report makes key recommendations concerning company accounting policies:
The report also outlines key recommendations regarding internal control over financial reporting (ICFR):
“Our members are highly committed to the deterrence and detection of fraud and are focused on their responsibility toward that effort, which includes overseeing the preparation of accurate financial information and the importance of designing, monitoring, and maintaining effective internal control over financial reporting,” said Andrej Suskavcevic, CAE, president and CEO, Financial Executives International (FEI). “We fully support the efforts of the SEC to promote cooperation and self-reporting.”
“Successfully battling fraud in financial reporting requires strong collaboration among all the principal players,” said Institute of Internal Auditors (IIA) President and CEO Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA. “This report is built on such collaboration and offers valuable direction and insight on improving accounting policies and internal control over financial reporting.”
“The sharing of leading governance practices is an essential element of effective board leadership,” said National Association of Corporate Directors (NACD) President and CEO Peter Gleason. “While this report is an important guide for all corporate directors, it will be especially of interest to our public company audit committee members.”
Addressing Challenges for Highly Subjective and Complex Accounting Areas compiles leading-practice recommendations from dozens of company executives, corporate directors, and auditors who attended two 2016 Anti-Fraud Collaboration workshops to discuss ways to help deter fraud and enhance financial reporting. Taken together, these insights illuminate and underscore how improved accounting policies and internal controls related to highly subjective and complex accounting areas are key for stemming financial reporting fraud and reducing the number of restatements.