"The audit committee of each issuer...shall be directly responsible...for the oversight of the work of any registered public accounting firm employed by that issuer (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work..."

Sarbanes-Oxley Act: Sec. 301; amendment of Sec 10A(m)(2) of the Exchange Act of 1934


Who is the audit committee's financial reporting expert? Technical reporting guidance under GAAP & IRFS is often silent or ambiguous on difficult and challenging issues that can affect the enterprise's valuation. Who can articulate the solutions for other board members and the shareholders? Who is liaison for the audit committee in dialogue between the CFO, the auditors and the SEC staff?

The Sarbanes-Oxley Act (SOX) mandates that audit committees of public companies take an active role in the enterprise's disclosure function. It does so by placing the committee in the roles of review and mediation. The new law establishes an 'obligation to know' for the audit committee. The objective of the involvement is the protection of investors.


GAAP, Disclosure Solutions & the SEC

The post-SOX audit committee bears a clear responsibility for understanding GAAP and how to assess the interpretation and application of GAAP in complex and subjective company transactions. These decision points for the committee will commonly arise when fulfilling its SOX obligation for reviewing all material transactions affecting the company's financial statements and any adjustments to the financials made by the auditors. Such scenarios are most common during:

  • pending significant transactions, such as revenue arrangements, which can sometimes also warrant pre-clearance dialogue with the Chief Accountant's Office of the SEC
  • comment letters issued by SEC staff on un-announced periodic reviews of company filings
  • share registrations
  • acquisitions

At times, there will be differences between the GAAP selected by the CFO and that preferred by the auditors. And in other cases, those two sides will agree but the SEC's interpretation and application of GAAP may disagree with the company's position - because of the SEC's own unpublished policies, or its unique assessment of the underlying facts. In all cases, the SEC will expect any resolution to be mediated by the audit committee to fulfill the obligations stipulated by SOX.


Advisory Support

A provision of the Act permits audit committees to hire outside advisers to fulfill their obligations and gives the committee authority to fund the services. Street Disclosure is ideally positioned to provide experienced support for the audit committee's newly mandated responsibilities related to its dialogue with the CFO, its auditors and the SEC.

Our extensive experience working on, and with, the SEC staff affords the audit committee a highly practiced advisory resource for resolving disclosure issues accurately and efficiently. We believe the most important steps are (1) understanding the economic substance of the complex transactions underlying the disclosures to be reported in the company's financial statements, footnotes and Management's Discussion & Analysis; and (2) articulating the disclosure solutions transparently for investors and board members, to assure informed dialogue and decisions.

We are also thoroughly practiced at interfacing with the enterprise's audit-engagement partners, the related national SEC practice sections and the SEC staff, including the Chief Accountant's Office for the Divisions of Corporation Finance, Enforcement and the Commission itself, on all matters of technical resolution and related SEC disclosure policy.

There are no independence concerns with Street Disclosure because we work only with the audit committee. We have no affiliations or relationships with the independent accounting firms and do not provide services to the operations side of the company when we service the audit committee.


This page is provided by Street Disclosure Corporation for informational, educational and promotional purposes only and is not intended and should not be construed as legal advice.