Course Name: Current Developments in the SEC’s Office of the Chief Accountant

Speaker: Rahim Ismail, U.S. Securities and Exchange Commission Course Description: This session will focus on the implementation of new standards regarding revenue, leases and financial instruments. Topics to be covered include the OCA’s consultation process, recent accounting matters, most frequently consulted topics and recent areas of consultations, as well as auditing related matters. Learning Objectives: This session will focus on:

• Implementation of new standards: revenue, leases and financial instruments

• OCA’s consultation process • Recent accounting matters

o Most frequently consulted topics o Recent areas of consultations

• Auditing related matters Category: Basic/Technical Prerequisites: None

Current Developments in the SEC’s Office of the Chief AccountantApril 29, 2019

Rahim Ismail, Professional Accounting FellowOffice of the Chief AccountantU.S. Securities and Exchange Commission

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This presentation expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

Disclaimer

Agenda

SEC/Office of the Chief Accountant Overview

Accounting Group Update

Professional Practice Group Update

ChairmanJay Clayton

2017

Robert J. Jackson Jr.

2018

Elad L. Roisman

2018

Hester M. Peirce 2018

Vacant

SEC Commissioners

SEC Commissioners

Division of Corporation

Finance

Division of Trading and

Markets

Division of Investment

ManagementDivision of

EnforcementDivision of

Economic and Risk Analysis

Office of the Chief Accountant (OCA) 22 Other Offices

Division Chief Accountants

SEC Organizational Structure and OCA

SEC Chief Accountant

Responsibilities of OCA

Principal advisor to the Commission on accounting and auditing matters

Rulemaking, interpretive guidance, and reports

Oversight and monitoring of standard setting

Consultations

Main Groups of OCA

Accounting

Professional Practice

International

Chief Counsel and Enforcement Liaison

Avenues for Consultations with OCA

Pre-filing basis – requests from registrants– Guidance for resolving ‘pre-filing’ questions is posted

on the SEC’s website• https://www.sec.gov/page/communicating-oca

Post-filing basis– Division of Corporation Finance – Enforcement– PCAOB

Informal consultations– Informal discussion with OCA staff members

• Accountant-on-call: (202) 551-5300

Consultations with OCA

Assigned team applies a rigorous decision-making process Process may incorporate outreach to the standard

setters Certain triggers cause the staff and Deputy Chief

Accountant to consult with the Chief Accountant Review processes exist within OCA when the

registrant disagrees with a view

Consultations with OCA (cont.)

Send requests to OCARequest@sec.gov Provide all relevant facts and background Clearly state the accounting issues Provide an analysis of the applicable authoritative

accounting guidance for each issue Explain the alternative solutions, which one management

concludes is most appropriate, and why the other alternatives were rejected Include any proposed disclosures State how the auditor and audit committee view

management’s conclusions

Consultations Statistics

Top consultation topics:*1. Revenue2. Financial assets and derivatives3. Business combinations4. Consolidations5. Income taxes and contingencies

*Fiscal year ended September 30, 2018

Agenda

SEC/Office of the Chief Accountant Overview

Accounting Group Update

Professional Practice Group Update

Big Changes Coming/Here

Revenue recognition (2018) Leasing (2019) Credit losses (2020) Other new accounting standards

Areas of Focus Implementation of New Accounting Standards

Cross-functional exercise ICFR Comparability across industries Evaluate specific facts and applicable literature Consistency in application of accounting Importance of disclosures (including SAB 74) Tone at the top/audit committee role Role of OCA staff in actively monitoring the profession’s

transition efforts

Area of Focus - New Revenue Standard

Adopted by a majority of registrants Implementation required collaboration by many

stakeholders Enhanced disclosure requirements are a key

element of the new standard OCA actively monitoring implementation work and

consulted on many revenue topics Division of Corporation Finance filing reviews

Area of Focus - New Revenue Standard (cont.)

Recent consultation themes:– Identification of performance obligations– Principal – agent considerations (i.e., gross vs. net

presentation)– Other

OCA continues to welcome consultation

Area of Focus – New Leases Standard

FASB Topic 842 objectives:– Transparency – Most lessees will recognize leases

on balance sheet– Comparability – Enhanced qualitative and

quantitative disclosures by lessees and lessors Addresses a primary objective of the 2005 SEC

staff report on off-balance sheet arrangements*

*See: Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers (June 15, 2005)

Area of Focus – New Leases Standard (cont.)

OCA staff has been actively monitoring implementation activities– FASB activities supporting transition– Engaging in stakeholder dialogue– Speeches and consultations on Topic 842

implementation and application questions OCA welcomes consultation

Area of Focus – New Leases Standard (cont.)

Consultations– Scope/definition of a lease– Lessee composition of remaining minimum rental

payments at transition• Executory costs• Payments based on an index or a rate

– Lessee costs– Lessor costs– Rate implicit in the lease

Affects financial and non-financial institutions, including certain lessor receivables OCA staff has been actively monitoring

implementation activities:– FASB/TRG activities supporting transition– Dialogue with various constituents– OCA welcomes consultation

Area of Focus – Credit Losses Standard

Many FRR 28 and SAB 102 concepts will remain relevant– Procedural discipline– Development, documentation, and application of a

controlled systematic methodology– Data reliability

Area of Focus – Credit Losses Standard (cont.)

Changes the definition of a business

Creates a two-step test that requires judgment when determining whether a set of transferred assets and activities is a business

– Step 1 – Is substantially all of the fair value of the gross assets acquired concentrated in a single (or group of similar) identifiable asset(s)?

– Step 2 – Evaluate whether an input and a substantive process exist…and does the set have outputs?

While the guidance is written in the context of acquisitions this also impacts the accounting in other areas, such as dispositions, segment changes, etc.

Adoption for public business entities for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019.

Recent consultations

Area of Focus – New Definition of Business Standard(ASU 2017-01)

Consultation on LIBOR replacement

Structured financing arrangements in Oil and Gas

ASU 2017-11, Accounting for Certain Financial Instruments with Down-Round Features

Area of Focus – Financial Instruments – Consultations

Agenda

SEC/Office of the Chief Accountant Overview

Accounting Group Update

Professional Practice Group Update

Professional Practice: PCAOB Board

ChairmanWilliam D. Duhnke III

2018

Kathleen M. Hamm2018

J. Robert Brown, Jr.2018

James G. Kaiser2018

Duane M. DesParte2018

Professional Practice: PCAOB Projects

Strategic Plan

Standard-Setting Agenda– Accounting Estimates, including Fair Value– Specialists– Supervision of Other Auditors– Going Concern

Research Projects

Professional Practice: Activities

Internal Control Over Financial Reporting

Implementation of the New Auditor’s Report

Auditor Independence

Questions?

Rahim M. Ismail, CPA Professional Accounting Fellow Office of the Chief Accountant U.S. Securities and Exchange Commission Rahim Ismail is a Professional Accounting Fellow in the Office of the Chief Accountant at the United States Securities and Exchange Commission (SEC). Mr. Ismail focuses primarily on accounting issues related to financial assets, derivatives and hedging activities, and business combinations. Mr. Ismail’s responsibilities include consulting with registrants on accounting and reporting matters, following the activities of U.S. and international accounting standard setters, and participating in the development of the Commission’s and other standard setting bodies’ rule proposals. Mr. Ismail rejoined the SEC in June 2016. Prior to rejoining the SEC, Mr. Ismail was a Senior Manager in EY’s National Accounting Professional Practice Group in New York and Washington DC. Prior to rejoining EY, he was on the staff at the Securities and Exchange Commission in the Division of Corporation Finance. He graduated from the University of Houston with a Bachelor’s of Science in Accounting. He is a licensed Certified Public Accountant in Texas and New York.