The importance of trust and transparency in global markets

As an international consultancy, we’re used to dealing with the many different rules and regulations that are instituted by different financial regulatory authorities across the globe. But as the world economy becomes increasingly global, it’s imperative for governing bodies to work together internationally so that businesses can grow while remaining compliant. A recent SEC speech discussed just that.

At an event hosted by the Institute of Chartered Accountants in England and Wales, SEC Commissioner Mark T. Uyeda’s speech discussed corporate account standards in a global context, referencing the important relationship between the UK and the US. In 2007, the SEC amended its account rules to allow foreign private issuers to include financial statements that were prepared in accordance with the international financial reporting standards (IFRS), as issued by the International Account Standards Board (IASB), in their SEC filing without reconciliation to the generally accepted account principles used in the United States (US GAAP). This was a landmark change in SEC regulation that greatly increased the ability of companies to do business in the US without taking on the extra burden of having to manage multiple different financial reports.

While this change helped ease the ability to conduct business globally, Commissioner Uyeda acknowledges the importance of the IASB to set a high bar when it comes to the standards set in the IFRS. The IFRS Foundation recently proposed creating an International Sustainability Standards Board (ISSB). He referenced comments made by fellow Commissioner Hester Peirce, warning the IFRS of a potential drain the ISSB could have on “time, resources, and attention.” Commissioner Uyeda urged the IFRS Foundation to not lose sight of the importance of accounting standard setting, and the attention focused there was critical to their mission.

He then turned his attention to account standards among crypto assets, a relatively new but growing part of the market. Uyeda discussed some of the work the FASB is doing to set strong standards in crypto accounting, such as measuring assets at fair value, presenting them separately on a balance sheet, and recognizing changes in fair value as part of net income. While the global markets patiently wait for official guidance from regulators in many different aspects of the burgeoning crypto market, having consistent international regulations for the new asset class will be vital to success for that portion of the market.

Finally, the speech turned its at to preventing accounting violations and implications when they occur. Commissioner Uyeda acknowledges that there will be errors and noncompliance with financial reporting requirements, but then immediately lets the group know that SEC enforcement of these violations is up 55% from the prior fiscal year.

The SEC is clearly focused on identifying and resolving these violations and, when they are found, they can be costly to firms. Their authority goes beyond imposing civil penalties, and in a couple actions from last year the SEC sought to claw back executive bonuses from sales of company stock. There’s also a new rule that was adopted by the SEC requiring listed companies, including foreign private issuers, to adopt a claw back policy related to accounting restatements where excess incentive compensation be returned from current and former executive officers when financial statements need to be amended due to material noncompliance with financial reporting requirements.

The moral of the story; the SEC cares about these violations. Commissioner Uyeda speaks to the importance of a strong audit committee at an organization as one of the best ways to prevent these violations from occurring. These committees should understand the policies the organization has set to be sure they comply with the accounting standards they are required to meet. They should take care in appointing, compensating, and overseeing the company’s auditor, particularly making sure the auditor is truly independent. And, finally, they should contribute to a culture of cooperation between management and the auditor.

While this speech focused on accounting standards specifically, we think this overall theme is vital for global businesses to be aware of. At the end of the day, it’s up to you to make sure you’re meeting the different rule requirements based on how and where you do business.

How we can help

Our team of international regulatory experts can help you understand the different rules and requirements of the SEC and adapt your compliance systems accordingly.

We also work with innovative firms in the digital assets space across all major jurisdictions, advising on the current regulatory framework for crypto assets while closely tracking developments so firms can plan for future regulation.