Key Highlights for Finance Function
Auditors and regulators are raising the bar on disclosure quality. From MD&A cause-and-effect analysis to non-GAAP prominence, new FASB requirements income taxes, disclosure hot spots are squarely in the spotlight. PCAOB inspections continue to flag evidence gaps, and SEC comment letters are pressing companies to do more in the disclosures than simply state financial statement amounts—they expect decision-useful, meaningful analysis.
Are your disclosures audit-ready? We outline the top areas auditors are focused on.
- Regulators and inspectors are pressing harder. PCAOB inspection updates show elevated attention to whether audits obtained sufficient appropriate evidence to support opinions—driving firms to probe disclosure quality and completeness and ensuring appropriate audit procedures (and internal controls when an integrated audit is performed) over financial statement disclosures.
- SEC comment letters continue to concentrate on disclosure quality. The most frequent SEC Staff comments target MD&A (cause-and-effect analysis), non-GAAP measures (prominence and potentially misleading adjustments), segment reporting, and revenue recognition. Click here to access our publication related to SEC comment letter topics.
- New FASB disclosure standards are in play. Auditors are testing adoption-readiness and completeness relative to new accounting standards. For example, ASU 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09) is required to be adopted by public business entities beginning with annual periods beginning after December 15, 2024. This will require additional information to be disclosed, thus requiring management to ensure a process to track and gather the required information and ensure appropriate internal controls. Click here to access our publication related to ASU 2023-09.
What Auditors will be focused on:
- MD&A (Reg S-K Item 303). Expect challenges if MD&A merely repeats line items; staff expects decision-useful, “through the eyes of management” analysis of drivers and trends.
- Non-GAAP financial measures. Equal or greater prominence for GAAP, clear reconciliations, and avoidance of adjustments that exclude normal, recurring cash operating expenses. Staff is actively commenting on presentation and prominence. SEC+1
- Segment disclosures (ASC 280). New requirements to disclose significant segment expenses, enhanced interim disclosures, and clarification around multiple measures of profitability—including single-segment entities. Careful consideration related to changes in the business and internal reporting that could impact historical conclusions relative to reportable segments also needs to be made.
- Income tax footnote (ASC 740). More disaggregated rate reconciliation categories and income taxes paid information is required by ASU 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09) beginning with annual periods beginning after December 15, 2024 for public business entities; auditors will test data utilized to support financial statement disclosures and the related internal control over financial reporting.
- Supplier finance programs. Completeness and clarity of program terms and rollforwards of confirmed obligations.
How Virtas can help
Virtas has extensive expertise in technical accounting and financial reporting. We work alongside your team to ensure complex transactions, policies, and disclosures are properly assessed, documented, and communicated.
Our Professionals Provide:
- Expertise in U.S. GAAP and SEC reporting requirements
- Support to meet close and reporting deadlines
- Guidance to strengthen disclosures and internal controls and reduce compliance risk
- Practical insight to enhance readiness for transactions and investor engagement