By David Reavy, partner, and Yuval Ron, senior manager, Department of Professional Practice, KPMG LLP | Feb. 08, 2012
From the Financial Reporting Network
The SEC staff has communicated in recent speeches and comment letters its increased focus on management’s responsibility for fair value measurements of investment securities when using third-party pricing vendors.
The SEC staff indicated that it will increase scrutiny of companies’ internal controls over financial reporting, compliance with the accounting and disclosure requirements in financial statements, and management’s discussion and analysis (MD&A) disclosures.
The SEC staff expects companies to have a sufficient understanding of the valuation models, assumptions, inputs and pricing methodologies that vendors use. It also expects companies to design and implement effective internal controls over vendors’ prices used in the fair value estimation process.
These expectations have been a recurring topic in recent SEC staff speeches, including the 2011 AICPA National Conference on Current SEC and PCAOB Developments, and the AICPA National Conference on Banks and Savings Institutions. The SEC also has addressed this topic in discussions at the CAQ SEC Regulations Committee and through SEC staff comment letters.
The SEC staff has used these venues to describe specific areas of focus and identified questions that companies should address to ensure they are complying with U.S. GAAP. Specifically, the SEC staff raised concerns that some companies may not sufficiently understand the prices that they receive from vendors.
This lack of understanding may hamper companies' efforts to identify the related risks and uncertainties of fair value measurements. The SEC staff also questioned whether companies may have deficiencies in internal controls designed to identify exceptions and errors in security prices.
Management may consider this increased focus as an opportunity to gain a better understanding about vendors’ prices so it can improve its fair value estimation process by implementing more precise internal controls over financial reporting.Read Defining Issues No. 11-65, "SEC Staff Communicates Expectations about Management's Responsibilities for Fair Value Measurements of Investment Securities"
- Browse KPMG Services
- Give Feedback
- Subscribe to RSS News Feeds
- Listen to Podcasts
- View Webcasts on Demand
- See Upcoming Events
Things You Can Do
Register for KPMGInstitutes.com
As part of the KPMG Institutes online community, you'll be able to participate in Webcasts, access premium content, post comments, rate research and provide valuable insight supporting critical business topics and industry issues.
KPMG Institutes Network
- KPMG Advisory Institute
- KPMG Audit Committee Institute
- KPMG Global Energy Institute
- KPMG Global Enterprise Institute
- KPMG Government Institute
- KPMG Healthcare & Life Sciences Institute
- KPMG IFRS Institute
- KPMG Shared Services and Outsourcing Institute
- KPMG Tax Governance Institute
- KPMG Financial Reporting Network
- KPMG TaxWatch