A recent post on the Wall Street Journal’s CFO Journal blog reported recent comments by Andrew Ceresny, head of enforcement at the SEC, signaling that financial reporting issues will be the subject of enhanced scrutiny as actions related to the financial crisis recede. We highlighted the SEC’s settlement with CVS over purchase accounting issues in a recent post.
In testimony before Congress this spring, SEC Chair Mary Jo White cited efforts by the newly-formed Financial Reporting and Audit Task Force to “identify areas susceptible to fraudulent financial reporting through an on-going review of financial statement restatements and revisions, analysis of performance trends by industry, and the use of technology-based tools.” Through Operation Broken Gate, the task force is focused on audit failures in addition to issuer fraud.
The task force will reportedly focus on the following areas:
- Revenue recognition
- Valuation
- Capitalized versus noncapitalized expenses
- Reserves
- Acquisition accounting
- Other non-GAAP performance measures
The emphasis on valuation issues is not surprising, since the exercise of judgment is an inherent aspect of valuation. Valuation judgments are central to goodwill impairment testing, equity compensation, purchase price allocation, and portfolio valuation. The increased regulatory scrutiny highlights the need for expert advice from valuation specialists and a thorough, well-documented process of making and supporting key valuation inputs.
At Mercer Capital, we have a long track record of assisting management of public and private companies with valuation issues pertaining to financial reporting. Please contact one of our financial reporting valuation professionals to discuss your needs in confidence.
Related Link
Mercer Capital’s Financial Reporting Blog
Mercer Capital monitors the latest financial reporting news relevant to CFOs and financial managers. The Financial Reporting Blog is updated weekly. Follow us on Twitter at @MercerFairValue.
