MONTH-IN-BRIEF (Sep 2023)
SEC Chief Accountant Urges “Comprehensive” Approach to Risk Assessment
By: Thomas W. White, Retired Partner, WilmerHale
In late August, Securities and Exchange Commission (SEC) Chief Accountant Paul Munter issued another in a series of statements regarding financial reporting and auditing. Mr. Munter’s latest statement sets forth his office’s views of the appropriate scope of corporate risk assessment processes. The statement begins by observing that “[m]anagement’s and auditors’ risk assessment processes are critical to the decisions regarding financial reporting and the effectiveness of internal control over financial reporting (ICFR).” It then expresses concern that management and auditors, in some instances, “appear too narrowly focused on information and risks that directly impact financial reporting, while disregarding broader, entity-level issues that may also impact financial reporting and internal controls.” This “narrow focus” can “result in material risks to the business going unaddressed and undisclosed, thereby diminishing the quality of financial information.” The statement goes on to discuss management’s obligations in identifying, responding to, and disclosing risks. It also discusses auditors’ “gatekeeper” responsibilities.